Naira Depreciates as Dollar Supply Dries Up in Nigeria
The Nigerian naira has taken a hit as the country’s official foreign exchange market witnessed a significant decline in dollar supply. According to data from FMDQ, the turnover of willing buyers and sellers at the official FX market dropped by 18.26 percent to $201 million on Tuesday, compared to $246.44 million on Monday.
This development has led to a depreciation of the naira against the US dollar, with the official exchange rate standing at N1,582.09 per dollar on Tuesday. This is a stark contrast to the previous two weeks, where the naira had been appreciating against the dollar due to the introduction of the Central Bank of Nigeria’s Retail Dutch Auction System (rDAS).
The rDAS was introduced last week to curb the spike in dollar demand, but it appears to have had the opposite effect. The apex bank sold $815.36 million to end users in its auction, which has resulted in a shortage of dollars in the market.
The country’s external reserves also took a hit, dropping 0.68 percent to $36.620 billion as of August 12, 2024, from $36.872 billion recorded on August 7, 2024.
The decline in dollar supply and the subsequent depreciation of the naira is likely to have significant implications for Nigeria’s economy, particularly for importers and businesses that rely on foreign currency. The development is also likely to fuel inflation and affect the overall purchasing power of citizens.
As the situation continues to unfold, it remains to be seen how the Central Bank of Nigeria will respond to address the shortage of dollars and stabilize the exchange rate.
