Naira Shows Mixed Performance: Depreciates to N1,730 in Parallel Market, Gains 3.03% in Official Market
The Nigerian naira experienced a mixed performance on October 25, 2024, with a slight depreciation in the parallel market and a notable gain in the official market. The currency weakened by 0.12% against the US dollar, trading at N1,730/$1 in the parallel market—a marginal decline of N2 from the previous rate of N1,728. This marks the second consecutive day of depreciation following a 0.58% appreciation on October 23, when the naira was valued at N1,725/$1. Meanwhile, in the Investors and Exporters (I&E) window, the naira reversed a threeday depreciation streak, closing at N1,601.20/$1, a 3.30% improvement from the prior close of N1,654.09.
Since October 15, the naira has consistently traded above the N1,600 threshold in the official market. The gap between the parallel market rate and the official rate has widened significantly, increasing to N128.80, up from the previous day’s difference of N73.91. Additionally, data from the Nigeria Association of Financial Markets Institutions (NAFEM) revealed a 69% surge in foreign exchange transactions, totalling $230.99 million, compared to $136.68 million previously. CBN Reserves and Policy Measures The Central Bank of Nigeria’s (CBN) external reserves saw a 0.188% rise to $39.230 billion on October 22, 2024, marking the ninth consecutive day of growth. Recent CBN policies, including interest rate hikes aimed at curbing inflation and stabilising the economy, appear to be stabilising the domestic currency. The CBN has also cleared backlogs of foreign exchange obligations, including payments to airlines.
Market Trends
Throughout 2024, the naira has faced sustained depreciation, losing over 50% of its value since the beginning of the year in the official market. In January, the currency traded at N838.95/$1 and breached the N1,500/$1 mark in February. A brief rally in March saw it recover to N1,300.43/$1, before reaching a record low of N1,660.5/$1in October. In the parallel market, the naira started the year at N1,215 per dollar, reaching an alltime low of N1,880 in February before recovering to N1,110 in April. However, it has since resumed a downward trajectory, recently dipping into the N1,700 range. Key Data Points On October 24, 2024, the naira traded as high as N1,696 per dollar and as low as N1,585.43/$1, reflecting a disparity of N110.57 before settling at N1,601.20 in the I&E window
By October 25, the naira traded at N1,730 per dollar in the parallel market, indicating a slight 0.12% decline from the previous day’s rate of N1,728. In the I&E window, the currency closed at N1,601.20/$1, demonstrating a 3.30% improvement from the prior close of N1,654.09. Trading volumes in the I&E window surged, reaching $230.99 million compared to $136.68 million the day before, highlighting increased market activity and dollar demand.
Key Factors at Play
During a recent press briefing at the ongoing World Bank/IMF meetings, the newly launched Global Financial Stability Report underscored signs of stability in the Nigerian naira, largely attributed to recent CBN policies. The International Monetary Fund (IMF) noted that the naira’s steadiness results from actions taken by the CBN, including clearing the foreign exchange backlog and raising interest rates. The report indicated that these policy measures have led to positive developments, contributing to the naira’s improved stability.
What to Expect
With the naira recently breaching the N1,700/$1 mark, there is potential for a shortterm recovery. Global oil prices have stabilised between $79 and $81 per barrel, and the CBN’s consistent interventions may alleviate some inflationary pressures, fostering a more positive outlook for the naira. Additionally, new policies aimed at reducing foreign exchange demand could further support the currency, potentially bringing it back into the N1,600/$1 range in the near term. Notably, the official exchange rate closed at N1,601.20 on October 25, following the CBN’s $60 million intervention in the official market on October 17, when dollars were sold to deposit banks at N1,540.
Nevertheless, the naira’s trajectory will remain closely tied to broader macroeconomic factors, including inflationary pressures and foreign currency supply. As Nigeria navigates these challenges, the effectiveness of policy responses will be crucial in determining whether the naira stabilises or faces further depreciation.
