The Nigerian naira continued its downward trajectory, extending its weakening trend yesterday to reach N1,450 per dollar on the parallel market, down from N1,300/$1.
Similarly, data from FMDQ revealed a further depreciation of the local currency on the official market, with the naira closing at N1309.88/$1 on Thursday, compared to N1,308.52 per dollar the previous day.
Analysts attribute this recent decline in the naira’s value to a shortage of domestic dollar liquidity. Bloomberg’s report on Wednesday highlighted the insufficient supply of dollars, which poses a challenge to the Central Bank of Nigeria’s efforts to bolster confidence in the naira.
The report noted a drop in foreign exchange market volumes to a two-month low of $86 million on Friday before recovering to $133 million on Tuesday.
Samir Gadio, head of Africa strategy at Standard Chartered Bank, commented on the situation, stating, “The naira has been supported by onshore dollar selling as long positions were unwound, but the rally was probably overextended.”
He explained that a dislocation emerged as domestic market participants sold dollars at progressively lower spot levels, leading to an unsustainable situation and subsequent correction.
Since June, the naira has experienced a significant decline, losing over 60% of its value against the dollar following two devaluations aimed at allowing the currency to float more freely to attract foreign capital. The Central Bank of Nigeria has implemented various measures to encourage lenders to supply more dollars to the local market.
In a recent move to address liquidity challenges in the parallel market, the apex bank offered dollars to bureau de change operators at N1,021 per dollar on Tuesday. This rate represents a 21% discount from the official rate tracked by FMDQ and aims to enhance liquidity in the parallel market.
