The naira fell to a four-month low on Tuesday, trading at N1621.12/$ at the official window, down from N1611.40/$ on Monday. This represents a 0.60% depreciation from the previous day’s close.
Factors Behind the Depreciation
Despite recent interventions by the Central Bank of Nigeria (CBN), which included selling dollars to authorized dealers and Bureau De Change operators, foreign exchange demand continues to outstrip supply. The CBN’s approach to the forex market, under Governor Olayemi Cardoso, emphasizes allowing market forces to determine the naira’s value while providing liquidity in targeted segments.
Cordros Capital Limited has noted that the naira is expected to remain weak due to tight market liquidity and the CBN’s limited capacity for substantial interventions.
Market Overview
The naira’s depreciation reversed gains from the previous week. On Monday, it had closed at N1611.40/$, approximately 0.13% weaker than the N1609/$ recorded on Friday. The daily turnover in the FX market was $179.34 million, up from $168.3 million on Friday, with intra-day fluctuations ranging from a high of N1622/$ to a low of N1500/$.
In the black market, the naira traded as high as N1630/$ on Tuesday. A ship equipment merchant in Lagos reported agreeing to sell equipment at N1550/$ on Monday evening but facing higher rates when he checked the market on Tuesday.
Implications
The naira’s continued decline highlights ongoing challenges in Nigeria’s foreign exchange market, driven by a persistent imbalance between demand and supply. The CBN’s strategy of minimal intervention and allowing market forces to dictate the currency’s value may lead to further volatility in the near term.
(Punch)