The Nigerian Naira depreciated for a third consecutive day against the US dollar in the official market, extending recent losses despite rising foreign reserves.
Data from the Central Bank of Nigeria (CBN) indicated that the currency weakened to N1,356.11 per dollar on Wednesday, down from N1,355.37 the previous day. This represents a daily decline of N0.74. Over the three-day period, the Naira has lost N6.87 at the official exchange window following reported foreign exchange (FX) absorption by the apex bank.
The parallel market mirrored the downward trend. According to market reports, the Naira traded at N1,375 per dollar on Wednesday, a N5 drop from the N1,370 rate recorded on Tuesday.
This sustained depreciation occurs against the backdrop of a continued increase in Nigeria’s foreign reserves, which rose to $49.39 billion as of February 24, 2024. The rise in reserves typically provides a buffer for the currency and is often seen as a positive indicator of external stability.
The concurrent trends of a weakening Naira in both official and unofficial markets alongside growing reserves highlight the complex dynamics within Nigeria’s multiple exchange rate system. Analysts note that factors beyond reserve levels, including market confidence, foreign currency demand from various sectors, and the balance between official market interventions and parallel market liquidity, significantly influence short-term exchange rate movements.
The persistent slide of the Naira raises questions about the effectiveness of current monetary policy tools in managing FX supply and demand imbalances. The CBN’s market operations, including its recent mopping up of dollars, are closely watched for their impact on currency stability. The divergence between official and parallel market rates also points to ongoing pressure and the premium sought for access to scarce foreign currency outside the regulated window.
The trajectory of the Naira will depend on the interplay between external factors like global oil prices and domestic policies aimed at boosting FX inflows and stabilizing the market.
