The persistent depreciation of the Naira over the past eight days has reignited concerns over Nigeria’s foreign exchange (FX) market stability. At the heart of the crisis lies an insufficient supply of foreign currency in the official window, leading to relentless pressure on the local currency.
This development follows the Central Bank of Nigeria’s (CBN) decision to slow down its forex interventions amid a steep decline in external reserves. As Nigeria grapples with foreign payment obligations, reserves have slipped to $39.154 billion, a critical threshold that underscores the challenges in sustaining liquidity in the official forex market.
After an initial rally that saw the Naira strengthen below ₦1,500 per dollar, the tide has turned, with consecutive negative movements in the official market. According to FMDQ spot FX data, the Naira depreciated by 0.23%, closing at ₦1,515.06 per dollar, while the parallel market showed a slight appreciation of 0.32%, closing at ₦1,570 per dollar, according to CardinalStone Limited.
The Nigerian Foreign Exchange Market (NFEM) remains under heavy demand pressure, operating as a predominantly bid market with limited forex supply. AIICO Capital Limited revealed that most transactions occurred within the range of ₦1,480.00 to ₦1,520 per dollar in the official market.
External Market Forces at Play
The naira’s depreciation is compounded by external market developments. A 1% drop in oil prices—triggered by optimism surrounding a potential peace deal between Russia and Ukraine and rising U.S. crude inventories—has further strained Nigeria’s FX earnings. Brent crude fell $1 (1.3%) to $74.18 per barrel, while U.S. West Texas Intermediate (WTI) crude dropped 97 cents (1.4%) to $70.40 per barrel.
Amid the FX turbulence, safe-haven assets like gold saw a surge in demand. Spot gold prices climbed 0.3% to $2,913.40 per ounce, edging closer to its record high of $2,942.70, while U.S. gold futures advanced 0.4% to $2,941.40 per ounce, reflecting global market anxieties over potential tariff policies from the U.S. administration.
The Road Ahead: Policy Response and Market Expectations
With CBN stepping back from its aggressive intervention, market participants are keenly watching for possible policy shifts that could stabilize the naira. The bank has opened an FX window for Bureau De Change (BDC) operators, allowing them to stock up at NFEM rates—a move that could help ease demand pressures in the parallel market.
However, for the naira to regain stability, Nigeria must address structural issues in its FX market, diversify revenue sources beyond oil, and implement policies that attract consistent foreign inflows. As the country navigates its forex challenges, market players remain cautious, awaiting further direction from monetary authorities.
Stay informed, Stay ahead with The Ameh News
Discover more from Ameh News
Subscribe to get the latest posts sent to your email.
