Currency Analysts Analyze 23% Depreciation Of Naira Over 4 Days

A surge in demand for dollars in the informal market, driven by both banks and individual users, coupled with sluggish forex distribution to Bureaux De Change (BDCs) by the Central Bank of Nigeria (CBN), led to a steep 23% depreciation of the Naira against the dollar last week, marking its most significant weekly decline since February……….CONTINUE READING

While the CBN intervened in the official Nigeria Foreign Exchange Market (NAFEM) on Friday, stabilizing the Naira and causing a slight appreciation in the informal market, currency dealers and analysts remain uncertain about the Naira’s trajectory this week, citing the pace and effectiveness of CBN interventions as critical factors.

After steadily appreciating for two months, reaching N1,140 against the dollar on Friday, April 19, from N1,820 per dollar on Wednesday, March 21, the Naira saw a rapid decline over four consecutive days, plummeting by N285 (25%) to N1,405 per dollar by Thursday, April 25th.

A similar trend was observed in the official market, with the Naira depreciating by N169.24 (9.9%) to N1,339.23 per dollar on Friday, April 26th, from N1,169.99 per dollar on April 19.

Investigations indicate that various factors contributed to this reversal, including opportunistic behaviors driven by the lower exchange rate in the informal market. With the CBN resuming dollar sales to BDCs, the parallel market exchange rate remained below the official market rate, creating an opportunity for banks to exploit the rate differential by purchasing dollars at a lower rate and reselling them to customers at the higher official rate.

Following suit, some forex end-users engaged in purchasing dollars in the informal market, depositing them in domiciliary accounts, and subsequently selling them to banks at the higher official rate. These actions led to a significant surge in demand for dollars in the informal market, resulting in the 25% depreciation of the Naira over four days.

Currency dealers also highlighted the slow pace of dollar disbursement to BDCs by the CBN, with some BDCs experiencing delays of more than two weeks after making payments to the apex bank.

To address the situation, the CBN intervened in the official market on Friday, increasing the speed of dollar disbursement to BDCs and intensifying enforcement activities through monitoring task forces. Consequently, the Naira appreciated in the informal market on Friday, reaching N1300 per dollar from N1,405 per dollar on Thursday.

Currency dealers express cautious optimism about further appreciation of the Naira, citing coordinated efforts by the CBN and enforcement agencies to curb illegal practices and streamline forex transactions. They also call for additional measures, including executive orders and investment incentives, to support Naira stability and encourage diaspora investments.

In summary, the recent depreciation of the Naira underscores the complexities of Nigeria’s forex market and the need for proactive measures to maintain currency stability and boost investor confidence.

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