Naira declines across markets amid volatile forex dynamics

The Nigerian naira faced a sharp decline against the U.S. dollar at both official and parallel markets this week, marking the second slump in just three days.

This development comes after the naira staged a significant recovery last week, fueling concerns about the currency’s continued volatility.

According to data from the Central Bank of Nigeria (CBN), the naira depreciated by ₦20 on Wednesday, dropping to ₦1,545/$1 from ₦1,525/$1 recorded the previous day in the official market.

The parallel (black) market fared worse, with the naira closing at ₦1,710/$1, a steep ₦50 decline from ₦1,660/$1 within 24 hours.

The naira’s performance against other major currencies also reflected mixed outcomes. It strengthened slightly against the British pound, gaining ₦50 to close at ₦2,150/£1 from ₦2,200/£1.

However, it lost ₦20 against the Canadian dollar to trade at ₦1,280/CA$1, down from ₦1,300/CA$1. The most significant decline was against the Euro, where the naira dropped by ₦80 to ₦1,830/€1 from the previous rate of ₦1,760/€1.

Economic analysts attribute the naira’s erratic performance to multiple factors, including speculative trading, declining forex reserves, and inconsistent monetary policy.

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According to Dr. Tunde Olufemi, a forex analyst with Lagos Business School, the CBN’s recent interventions, such as increasing dollar supply at the official window, have had limited success in stabilizing the currency.

“The naira’s rapid fluctuations highlight the persistent structural issues within Nigeria’s forex market. Without a cohesive approach to address dollar demand and bolster confidence in the local currency, these swings will continue,” Olufemi explained.

Additionally, pressure on the parallel market has been exacerbated by heightened demand for foreign exchange to meet year-end importation and travel needs. “As December approaches, we typically see a seasonal spike in dollar demand, which pushes the naira downward,” said Adeola Ajayi, an economist at Stanbic IBTC.

The Nigerian government and the CBN have reiterated their commitment to stabilizing the forex market.

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Last week, the apex bank announced measures to unify exchange rates, a move that initially led to a surge in naira value. However, critics argue that a lack of transparency and insufficient dollar supply to meet market demand have undercut these efforts.

Despite the current downturn, some experts remain cautiously optimistic about a possible rebound.

“The naira’s recent appreciation shows that targeted interventions can yield results. But for a sustainable recovery, Nigeria needs to prioritize boosting non-oil exports and improving forex inflows,” remarked financial strategist Abiodun Adeoye.

The naira’s continued instability poses risks for businesses and households alike. Importers face rising costs, which could drive inflation higher, while everyday Nigerians struggle with diminishing purchasing power.

As the government seeks long-term solutions, the naira’s journey reflects the broader economic challenges facing the country.

Experts agree that tackling the root causes of forex volatility—ranging from dependency on oil revenues to underdeveloped financial markets—will be crucial to ensuring a stable economic future.