Naira depreciates by 0.7% as demand rises

The Naira on Tuesday depreciated against the dollar across foreign exchange (FX) markets as demand resurfaced.

After trading on Tuesday, the naira lost N11 depreciating by 0.7 percent as the dollar was quoted at N1,513 compared to N1,502 quoted on Monday at Nigerian Foreign Exchange Market (NFEM), data from the Central Bank of Nigeria (CBN) revealed.

Authorised dealers quoted the dollar at the highest rate of N1,508, slightly lower than N1,504 per dollar. The market recorded the lowest rate of N1,500 on Tuesday from N1,495.75 on Monday.

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The local currency, which opened at N1,570 lost N10 per dollar to close at N1,580/$1 in the parallel market, popularly called black market.

One of the street traders said on Tuesday that there was slight increase in demand for dollars by the end users.

Analysts at the Coronation Research noted that the foreign exchange market is liberalised today though, as is the case with many currencies, the central bank regularly intervenes. The CBN has addressed the backlog of US dollar claims that hung over the market during 2023 and early 2024, and it has introduced a new trading system.

The analysts said the response of foreign portfolio investors has been positive, with over US$1.0bn in Foreign Portfolio Investments (FPI) recorded by the CBN in October and again in November. In early December the Federal Government of Nigeria raised US$2.2bn in Eurobonds.

According to a report by Comercio Partners, the Central Bank of Nigeria has played an active role in mitigating the naira’s volatility during Eurobond- related inflow periods. After the 2017 Eurobond issuance, the CBN deployed targeted measures to increase foreign exchange liquidity.

These included augmenting funding for Personal Travel Allowance (PTA), Business Travel Allowance (BTA), medical expenses, and tuition fees, as well as shortening forward sales tenors from 180 days to 60 days to improve immediate FX availability.

Additionally, the apex bank increased dollar allocations to Bureau de Change (BDC) operators, further enhancing supply. Despite these efforts, the interventions provided only temporary relief.

Read also: Naira flat at 1,570/$ in black market as liquidity improves

The report explains that while external reserves tend to rise after Eurobond issuances, they often deplete within months, exposing the underlying fragility of Nigeria’s economic fundamentals. This cycle highlights the limited impact of monetary interventions without complementary structural reforms.