The Nigerian Naira experienced another setback on Tuesday, September 10, as it depreciated further against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX). The decline, exacerbated by a persistent FX supply crisis, has raised concerns about the country’s economic stability.
According to data from the FMDQ Securities Exchange, the domestic currency weakened by 3.61 percent or N57.13, closing at N1,637.59/$1. This marked a significant devaluation from the previous trading session’s rate of N1,580.46/$1. The FX turnover also witnessed a decline, dropping by 27.5 percent to $143.15 million from $197.37 million.
CBN’s Intervention Efforts
In an attempt to address the mounting pressure on the Naira, the Central Bank of Nigeria (CBN) has stepped in with a fresh injection of foreign exchange into the market. On Friday, the apex bank supplied dollars to Bureau De Change (BDC) operators, allocating $20,000 each at a rate of N1,580/$1.
The CBN’s decision to intervene was aimed at easing the demand for foreign currency in the retail market, particularly for essential transactions such as personal travel allowances, business travel allowances, medical bills, and school fees.
“Each eligible BDC will be allocated $20,000 at the approved rate,” said Mr. W. J. Kanya, acting director of the CBN’s Trade Exchange Department. “BDCs are authorized to sell to end-users at a margin not exceeding one percent above the purchase rate from the CBN.”
Impact on Other Currencies
While the Naira faced challenges against the US Dollar, it demonstrated some resilience against other major currencies. In the spot market, the local currency gained against the Pound Sterling, closing at N2,110.06/£1 compared to the previous day’s N2,095.29/£1. However, it remained unchanged against the Euro at N1,804.99/€1.
Black Market Remains Stable
In the parallel market, the Naira remained relatively stable against the US Dollar, trading at N1,650/$1. While the black market rate has often been higher than the official rate, the minimal fluctuations suggest that the CBN’s interventions have had some impact on curbing illicit foreign exchange activities.
Impact on the Economy
The continued depreciation of the Naira has significant implications for the Nigerian economy. It can lead to higher prices for imported goods, as businesses pass on the increased cost of foreign currency to consumers. This can contribute to inflation and erode the purchasing power of Nigerians.
Moreover, the weaker Naira can make it more expensive for Nigerian businesses to import raw materials and machinery, which can impact their competitiveness and profitability. It can also discourage foreign investment, as investors may be concerned about currency risk and potential capital losses.
Outlook for the Naira
The outlook for the Naira remains uncertain, as a number of factors continue to weigh on its value. The persistent FX supply shortage, coupled with the ongoing economic challenges facing Nigeria, suggest that the Naira may face further downward pressure in the near term.
However, the CBN’s intervention efforts and potential improvements in the country’s economic fundamentals could help to stabilize the Naira. It is also important to monitor developments in the global economy, as fluctuations in international currency markets can impact the value of the Naira.
As the Nigerian economy continues to navigate these challenges, the Naira’s performance will be a key indicator of the country’s overall economic health.
