The Nigerian naira experienced a significant drop against the US dollar in both the official and parallel markets on Thursday, July 11, 2024, despite an uptick in foreign exchange turnover. The naira traded at N1,554.66 per dollar in the official market and N1,570 per dollar in the parallel market.
FX Turnover Sees Increase
In the Nigerian Autonomous Foreign Exchange Market (NAFEM), traders exchanged a total of $348.82 million, reflecting a notable increase in foreign exchange turnover. Data from the FMDQ Exchange showed that the dollar was quoted at a high of N1,590 and a low of N1,465 in the official market.
The gap between the official and parallel market exchange rates has now widened to about N16 per dollar. This discrepancy is creating opportunities for those seeking to avoid official channels for foreign currency exchange. Currency trader Mallam Ishaku Abbas highlighted that the substantial difference incentivizes traders to use the parallel market, emphasizing the profitability of such transactions when dealing with large sums of money.
Call for CBN Intervention
Abbas suggested that the Central Bank of Nigeria (CBN) could narrow this gap by resuming foreign exchange sales to Bureau De Change (BDC) operators, which previously helped stabilize the naira. He pointed to the positive impact seen in March and April when the CBN intervened, which temporarily strengthened the naira against the dollar.
Rising Foreign Reserves
Amid these challenges, Nigeria’s external reserves have reached a new high, standing at $35.05 billion as of July 8, 2024. This marks the first time since President Bola Tinubu took office that reserves have surpassed $35 billion. The increase is significant compared to the reserves of $34.7 billion at the beginning of July, which saw an addition of $110 million in just 24 hours.
Interestingly, the naira has shown some resilience against other major currencies. On Wednesday, July 10, it appreciated against the British pound, closing at N1951.82 per pound, and against the euro, where it finished at N1,646.39 per euro. This improvement reflects a positive trend for the naira despite its struggles against the dollar.
Bottom Line
The naira’s recent decline against the US dollar underscores the ongoing volatility in Nigeria’s foreign exchange market. While increased dollar inflows and rising foreign reserves offer some hope, the widening gap between official and parallel market rates highlights the need for continued intervention and strategic measures by the CBN to stabilize the currency.
