CEM REPORT, CURRENCY| The Nigerian Naira is experiencing renewed depreciation, reaching a six-week low against the US Dollar on the official NAFEX window. On Tuesday, May 14, 2024, the exchange rate reached a concerning ₦1520.4/$1, representing a substantial 11% devaluation within the official market.
This sharp decline signifies a 2.78% drop from the prior day’s closing rate of ₦1478.11/$1. It represents the weakest position for the Naira since March 19, 2024, highlighting the ongoing volatility that characterizes the Nigerian foreign exchange market.
Erratic Market Dynamics
The trading activity on Tuesday further underscores the unpredictable nature of the forex market. The intra-day high spiked to ₦1568/$1, suggesting a temporary peak in the selling of Naira. However, the intra-day low dipped to N1350/$1, indicating potential buy-back activity or a corrective movement within the same trading session.
This erratic behavior emphasizes the challenges faced by businesses and individuals who rely on a stable exchange rate for their financial planning.
FX Market Supply Takes a Plunge
Adding to the concerns, the daily forex market turnover witnessed a significant decline of approximately 41% on Tuesday. The total volume closed at a mere $128.76 million compared to $217.64 million recorded just a day prior.
This substantial drop reflects the erratic nature of dollar supply within the official market. Notably, just the preceding day, forex supply had seen a substantial 91% increase, highlighting the unpredictable fluctuations that continue to plague the market.
Naira Recent Struggles
The Naira’s recent struggles paint a concerning picture for Nigeria’s economic landscape. Just a few weeks ago, the currency exhibited signs of promise, rallying around the ₦1000/$1 mark. However, this positive momentum has been short−lived, with the Naira now steadily weakening towards ₦1500/$1.
This depreciation has a direct impact on Nigerians, leading to a surge in prices for consumer goods, transportation, and food. The rising cost of living exerts immense pressure on the average citizen, impacting their ability to afford basic necessities.
CBN Policy: Falling Short of Expectations?
Financial experts like A. Olusemore, Fellow of the Chartered Institute of Bankers of Nigeria (CIBN), emphasize the need for effective policies coupled with a significant increase in foreign currency inflow.
He noted that the monetary policies implemented by the Central Bank of Nigeria (CBN), while well-intentioned, appear to be falling short of expectations. Nigerians yearn for a collective turnaround in the economic climate, but it’s evident that simply hoping for the best is not sufficient.
“This decline has led to skyrocketing consumer goods prices, increased transportation and food costs, putting pressure on the populace.
“There’s a collective hope for a turnaround, but it’s evident that more than prayers are needed.”
Additionally, Olusemore emphasized that the role of the CBN governor becomes even more critical at this juncture as the nation awaits decisive strategic interventions to stabilize the Naira and alleviate the burden on the people.
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If You Ask Me
The weakening Naira poses a significant threat to Nigeria’s economic stability. Urgent action is required from the CBN to implement effective policies that will curb forex market volatility and restore confidence in the currency.
Additionally, measures to stimulate foreign investment and increase dollar inflows are essential. A diversified and robust economy, less reliant on volatile oil prices, is crucial for long-term stability.
Nigerians and me in particular is hopeful that the CBN will rise to the challenge and implement the necessary measures to strengthen the Naira and foster economic growth. Notably, coming weeks and months will be crucial in determining the direction of Nigeria’s economic future.
