Naira under pressure, drops to N1,740 in parallel market

VANGUARD

There are indications that the local currency is set to fully reverse its gains as the depreciation trend enters a new height, hitting N1,740/$1 in the parallel market at the close of trading last weekend.

However, the Naira remained stable with minor appreciation in the Nigerian Autonomous Foreign Exchange Market, NAFEM, as dealers speculate that the Central Bank of Nigeria, CBN, would likely intervene any moment from now to curtail the pressure on the exchange rate.

Data from FMDQ showed that the indicative exchange rate for NAFEM fell to N1,600 per dollar from N1,601.2 per dollar on Thursday, indicating N1.2 appreciation for the naira.

Dealers who spoke to Financial Vanguard at the weekend said they expect the exchange rate to close this month around N1,750/$1 while 2024 may end at over N1,800/$1.

If this trend continues, by the end of the year, the local currency will have wiped out the gains it made in March this year when it suddenly appreciated massively, climbing down from an all-time high rate of N1,820/ $1 in February 2024 to N1,310/ $1 and further down to N1,240/ $1.

However, the appreciation was halted in April; subsequently, depreciation began and sustained until last week.

Year-on-year, YoY, Naira depreciated in the parallel market by 70.5 per cent to N1,705 per dollar at the close of the third quarter trading on September 30, 2024, from an average of N1,000/ $1 in September 2023.

Year-to-Date, YtD, depreciated by 16.7 per cent from N1,490/ $1 in January 2024.

The Naira recorded a massive 104% YoY depreciation in the official segment, NAFEM, to N1540.78 per dollar in September 2024 from N755.27 in September 2023. However, YoY NAFEM has recorded just 9.9 per cent depreciation to N1600/ $1 last weekend from N1,455.9/ $1 in January 2024.

Analysts and dealers have blamed the sustained depreciation of the local currency on supply shortages.

The monetary and fiscal policy authorities appear to be seeing the problem differently. At the last Monetary Policy Committee (MPC) meeting, the Governor of the CBN, Mr. Yemi Cardoso, who doubles as the MPC Chairman stated that members of the MPC had noticed a correlation between the period of FAAC disbursement and demand pressures in the foreign exchange market.

According to him, the apex bank will monitor future FAAC allocation disbursement to determine the impact on the FX market.

Cardoso stated: “Furthermore, members observed a strong correlation between FAAC releases and liquidity levels in the banking system as well as its impacts on the exchange rates.”