Currency Struggles: Naira Drops Due To Food Import Waivers, Economic Pressures

Currency Struggles: Naira Drops Due To Food Import Waivers, Economic Pressures

Increased demand for foreign exchange due to international travel, school fees, and the anticipated food import duty waiver has led to further depreciation of the naira in the past week. The Nigerian currency, which began September on a strong note, weakened significantly by Tuesday as demand surged……CONTINUE READING 

In the parallel market, the naira was quoted at N1,635 on Monday but depreciated to N1,640 by Tuesday, according to Bureau De Change operators in Lagos. By Friday, Musa Abbah, a BDC operator, reported selling dollars at N1,670 and buying at N1,665.

Despite this, the official Nigerian Autonomous Foreign Exchange Market, hosted by FMDQ Securities Exchange, saw the naira appreciate by 0.81% to N1,585.77 on Thursday from N1,598.56 in the previous session. However, the naira closed at N1,639.41 on Thursday, marking a 0.83% decline from the earlier trading period.

Afrinvest, in its August market report, predicted pressure on the naira unless foreign exchange inflows were increased. The firm noted that Personal and Business Travel Allowances (PTAs and BTAs) typically peak during this period, driving up demand.

Meanwhile, the Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, revealed that Nigeria recorded a total foreign exchange inflow of $24 billion in the first quarter of 2024. Remittance inflows also reached $553 million in July, a 130% increase from the same period in 2023. However, foreign capital inflow dropped to $770 million in April 2024, down 57.22% from March, primarily due to a decline in investments in money market instruments.

Agusto & Co., a rating agency, emphasized the critical role of the oil sector in stabilizing the exchange rate, especially after the foreign exchange market liberalization in 2023. According to Ayokunle Olubunmi, Head of Financial Institutions Ratings, high demand for forex due to travel, school fees, and businesses restocking for the year-end period is adding pressure on the currency.

Dr. Ayo Teriba, CEO of Economic Associates, highlighted that the planned food import duty waiver had worsened the situation. He expressed concerns that the waiver was encouraging increased demand for foreign exchange, further straining the limited supply.

In response to the depreciation, the CBN announced the sale of $20,000 to each eligible Bureau De Change operator at a rate of N1,580/$ to inject liquidity into the market. Aminu Gwadebe, President of the Association of Bureau De Change Operators of Nigeria, welcomed this move, noting that market confidence depends on adequate liquidity.

Gwadebe and Marcel Okeke, a former chief economist at Zenith Bank, both pointed to inflation and heightened demand for forex as significant contributors to the naira’s depreciation. Okeke also cited insufficient foreign direct investment, which exacerbates the supply-side challenges.