The foreign exchange (FX) market in Nigeria is facing intensified pressure as the naira experienced a significant depreciation, falling to 1,140 per US dollar on the parallel market, commonly referred to as the black market. This marks an 8.91 percent decline compared to the previous day’s average exchange rate of N1,046.66.
The naira’s downward spiral began earlier this week when it plummeted to an average rate of N1,046.66 per dollar due to a shortage of dollars on the black market, reflecting a 2.61 percent decrease (N26.66/$) compared to the rate of N1,020 quoted just a day before. In specific locations, the dollar was being exchanged for N1,080 in Festac, N1,030 at the Airport, and N1,025 per dollar in Ibadan.
Street traders have cited the fluctuating exchange rates and a reduction in the availability of dollars from their sources as reasons for the sudden shortage, leading to increased demand for the US currency. This market instability has left many concerned about the economic implications.
Last Friday, the naira had briefly strengthened against the dollar, gaining 22.13 percent (N290), as it fell to N1,020 on the black market from its peak of N1,310 on the previous Thursday.
In contrast, at the Autonomous Foreign Exchange Market (NAFEM), the naira continued to weaken. The dollar was quoted at N869.91, up from N809.02 on the previous day, based on data from the Financial Markets Dealers Quotations (FMDQ).
It is worth noting that at the NAFEM, willing buyers and willing sellers quoted the dollar at a historic high of N1,100 and as low as N700 per dollar in the official market.
The decline of the naira’s value at the NAFEM can be attributed to a reduction in the supply of dollars, as the daily foreign exchange market turnover decreased by 19.08 percent to $70.92 million on Tuesday, down from $87.65 million the previous day.
Moreover, the official market also witnessed a 4.24 percent loss in the value of the naira against the dollar on Monday, with the dollar quoted at N809.02 compared to N776.14 quoted on the preceding Friday.
The daily foreign exchange market turnover saw a decrease of 11.30 percent, falling to $87.65 million on Monday from $98.82 million recorded on Friday.
Despite the challenges in the FX market, the naira had shown some resilience earlier when it briefly appreciated to N970 per dollar on the black market over the weekend. This was driven by positive sentiments regarding government efforts to enhance dollar liquidity in the foreign exchange market.
Currency traders are now cautiously anticipating a potential appreciation of the naira, driven by expectations of increased dollar flows from willing buyers and willing sellers at the NAFEM, which could provide some much-needed stability in the FX market.