Naira hits record low of N1681/$1 amid persistent FX market pressures

The Nigerian naira reached an all-time low of N1681 per US dollar at the official Investor and Exporter (I&E) window on Tuesday, November 6, 2024, as reported by the FMDQ Exchange.

This sharp depreciation underscores the ongoing pressures on Nigeria’s foreign exchange (FX) market, marking a new low for the currency as it continues its slide against the dollar.

The exchange rate at the close of trading on Tuesday stood at N1681/$1, a decline from Monday’s closing rate of N1676.9/$1, which had already marked a yearly high.

This continued depreciation reflects the naira’s persistent weakening against the dollar, a trend that has intensified over the past few months.

In terms of market activity, turnover on Tuesday was recorded at $196.7 million, down from $218 million on Monday.

The average daily turnover for November so far stands at $147 million, significantly lower than October’s average of $245 million. This decline in turnover suggests a reduction in liquidity and heightened market volatility, contributing to the pressure on the naira.

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The parallel market rate has remained significantly higher than the official rate, hovering around N1735/$1. This stark discrepancy between official and unofficial rates reflects a growing divide in the FX market, with the unofficial market rate indicating a lack of confidence in the official rate.

The widening gap is further straining the Central Bank of Nigeria’s (CBN) ability to manage liquidity effectively, as traders increasingly turn to the black market for their dollar needs.

As of the latest data from the CBN, Nigeria’s external reserves stand at $39.9 billion, a figure that has remained relatively stable. However, these reserves have been unable to stem the decline of the naira, as demand for foreign currency continues to outstrip supply.

The naira has lost approximately 45% of its value against the dollar so far this year, placing it among the currencies with the largest depreciations worldwide in 2024.

This dramatic slide highlights the ongoing challenges Nigeria faces in balancing its FX market. Demand for the dollar remains robust, driven by import needs and external debt obligations, while supply remains constrained by factors such as declining capital inflows and global economic uncertainty.

The persistent weakness of the naira in November is a continuation of the pressures that have plagued the currency throughout the year. Without a significant increase in dollar inflows or a reduction in demand for foreign currency, this trend is likely to persist.

The Central Bank has faced increasing pressure to manage the naira’s decline, particularly with the widening gap between the official and parallel market rates. Although growth in diaspora remittances, which have increased to $600 million per month, has provided some relief, it has yet to translate into a stabilizing effect on the exchange rate.

Other challenges, such as Nigeria’s high fiscal deficits and declining levels of capital importation, continue to weigh heavily on the currency.