The naira depreciated to its lowest level in three weeks on the official market on Wednesday, June 5, 2024.
Closing at N1,488.60/$1, the naira experienced a 0.78% drop from the previous day on the NAFEM window, according to the latest data from the FMDQ Securities Exchange.
The naira’s latest slump, although marginal, affirms the high volatility of the local currency. Over the past three weeks, the naira has experienced a roller-coaster trajectory.
On May 27, the naira saw its highest strength within the last three weeks, trading at N 1,173.88/$, after a 14.09% appreciation.
However, the gains were short-lived as the currency quickly depreciated again. The sharp contrast highlights the currency’s volatility in the face of economic pressures.
Aside from the dip in value, the foreign exchange (FX) turnover rate today was reported at $205.43 million, a 13.32% decrease compared to the previous day.
This drop in the FX turnover rate, coupled with the naira’s depreciation, may signal a potential lack of confidence among traders and investors in the currency’s stability.
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As Nigeria grapples with various economic challenges, the naira’s depreciation poses further complications for policymakers and businesses alike.
The currency’s instability can lead to increased costs for imported goods and services, which in turn could drive inflation higher.
However, the Central Bank of Nigeria (CBN) and the government have been making efforts to boost forex liquidity in the market and the value of naira.
The apex bank has maintained a tight monetary policy stance to manage inflation and stabilize the naira.
The bank recently announced that International Oil Companies (IOCs) can sell 50% balance of their repatriated export proceeds to authorized forex dealers. The CBN’s new directive is poised to have a significant impact on the Nigerian forex market. By allowing IOCs to sell a substantial portion of their repatriated proceeds, the directive aims to boost forex liquidity, helping to mitigate volatility and foster a more stable economic environment.
However, the persistent demand for foreign exchange and the resultant pressure on the naira have posed challenges to these efforts.
Therefore, on the fiscal side, President Bola Ahmed Tinubu plans to discontinue the payment of taxes and levies in foreign currency through an executive order. To reduce pressure on the naira, the order also mandates that all levels of government and their agencies prioritize the procurement of Made in Nigeria goods and services.
Earlier, Fitch Ratings noted that the ongoing foreign exchange (FX) reforms are necessary to boost foreign direct investment (FDI) and foreign portfolio investment (FPI).
In a presentation on Monday, by Gaimin Nonyane, Director of Sovereigns at Fitch, it was stated that Nigeria’s current account (CA) will be strengthened by increasing oil refining capacity, but the reforms are still very crucial in attracting foreign investments.