Huge demand for dollars responsible for Naira decline, says analyst

Market analysts have attributed the recent decline in the value of the naira against the dollar at both the official and parallel markets to a steady rise in demand for dollars since the beginning of January.

The Naira on Wednesday fell to a record low of N1,320 per dollar following strong demand on the parallel market, also known as the black market.

This represents 3.03 per cent or N40.00 weaker than N1,280 recorded at the close of trading on Tuesday.

This depreciation marks the lowest the Naira has come to since October 26, 2023, when it reached N1,300 against the dollar on the parallel market.

The domestic currency depreciated 4.72 per cent to close at N878.57 to a dollar at the close of business, based on data from NAFEM where forex is officially traded.

This represents an N39.62 loss or a 4.72 per cent decrease in the local currency compared to the N838.95 closed the previous day.

The intraday high recorded was N1299.50/$1, while the intraday low was N720.50/$1, representing a wide spread of N579/$1.

READ ALSO: Naira drops to N878.57/$1 at official market, hits N330/$1 at black market

According to the former President and Chairman Governing council of, the Chartered Institute of Stockbrokers (CIS) and the Managing Director, of Arthur Steven Asset Management Limited, Mr. Olatunde Amolegbe, said the demand is primarily driven by businesses seeking to restock goods or raw materials and individuals requiring dollars for overseas studies.

Another reason is also due to the reopening of schools abroad as international students restock to pay school fees and hold some cash for holiday allowances.

“Confidence is what makes foreigners want to come to invest in your country and make locals want to keep their investments here. In the absence of these dynamics, demand will naturally outstrip supply and you see the sort of instability we are experiencing now.

“I think the decision to clear FX commitment backs will be positive for market confidence, but the desired impact might manifest in the medium term rather than in the short run.

“I also think the efforts at using monetary policy tools to reduce system liquidity could ultimately reduce currency speculation but again it’s not a silver bullet.

“Deliberate efforts need to intensify at effecting structural changes that will encourage import substitution such as improved security, better infrastructure, increased foreign direct investments, and encouraging local production,” he said.