The naira experienced renewed pressure in the official foreign exchange market on Tuesday, depreciating by 0.71 percent against the dollar. Despite this, Central Bank of Nigeria (CBN) Governor Olayemi Cardoso expressed confidence in the market’s stability.
Market Data and Trends
According to data from the FMDQ Securities Exchange Limited, the naira weakened to N1,500.79 per dollar after trading on Tuesday, down from N1,490.20 on Monday. The intraday high for the naira was N1,507 per dollar, slightly weaker than Monday’s N1,505, while the intraday low depreciated to N1,436 from N1,411.
The dollar supply from willing buyers and sellers dropped by 10.03 percent to $136.75 million on Tuesday, compared to $152.00 million on Monday. On the parallel market, also known as the black market, the naira traded at N1,505 per dollar, a 0.99 percent depreciation from the N1,490 seen for almost a month.
Factors Behind the Naira’s Depreciation
Traders attribute the naira’s decline to increased dollar demand by individuals preparing for summer holidays and importers needing dollars for raw materials. Abiodun Keripe, managing director of Afrinvest Research and Consulting, noted that it is too early to conclude that the renewed pressure is solely due to the upcoming summer holidays, as the depreciation occurred over just one day.
Keripe also mentioned an expected $2.5 billion inflow that could bolster Nigeria’s external reserves and strengthen the naira. As of June 21, 2024, Nigeria’s external reserves stood at $33.70 billion, up 2.09 percent from $33.01 billion on January 2, 2024.
CBN Governor’s Optimism
In a recent interview with Bloomberg in London, Governor Cardoso expressed optimism about the recent stability in the foreign exchange market, suggesting a potential end to the period of volatility. “I do believe that we have more or less seen the worst in terms of volatility. We are happy that the market is now such that willing buyers and willing sellers operate within the market,” Cardoso said.
He highlighted a period of stability following previous volatility, noting that the market has shown minimal movement in the currency over the past few weeks. Cardoso reiterated the CBN’s commitment to taming inflation through conventional methods and observed a deceleration in month-on-month inflation rates, which he described as a positive development.
Monetary Policy and Market Dynamics
Cardoso emphasized the importance of continuous monitoring by the Monetary Policy Committee (MPC) to control inflation. Nigeria’s annual inflation rate hit a 28-year high of 33.95 percent in May 2024, but recent data from the National Bureau of Statistics indicates a slowdown in the month-on-month inflation rate for the third consecutive month.
The CBN governor attributed recent improvements in market liquidity and confidence to increased liquidity and a more measured approach from market participants. He pointed out that the panic and front-loading of requests seen in the past have calmed down, contributing to market stability.
Cardoso also noted the achievement of merging disparate exchange rates into a more unified system, which he believes aids economic planning and investment. “We had two different rates. Right now, we more or less have one rate. And we believe that this is good. It allows companies to plan,” he stated.
Bottom Line
Governor Cardoso remains confident in the current market dynamics, emphasizing the importance of coordinated monetary and fiscal policies in achieving economic stability. He stressed that continuous observation and management are crucial to ensure the market benefits all participants, ultimately providing the best value for the naira.
