Naira extends depreciation to 1,515/$ despite marginal growth in external reserves

The naira on Monday extended depreciation against the dollar falling to 1,515 on the parallel market, popularly called black market.

This represents 2.97 percent (N45/$1) depreciation against the US dollar when compared to the level of N1,470 exchanged on Friday.

The fall came despite that Nigeria’s external reserves increased marginally by 0.4 percent week-on-week to settle at a four-week high of $32.4 billion as of May 8, 2024.

Analysts had expected the naira to extend its depreciation against the dollar to this week unless there is an intervention by the Central Bank of Nigeria (CBN).

Last week, the foreign exchange (FX) witnessed persistent weakness in the weaker than of the Naira due to shortage of dollars in the market.

At the close of FX market on Friday, the naira fell flat by 0.45 percent as the dollar was quoted at N1,466.31, weaker than N1,459.73 closed on Thursday at the Nigerian Autonomous Foreign Exchange Market (NAFEM), according to the market summary released by FMDQ Securities Exchange Limited.

The intraday high closed at N1,490 on Friday, weaker than N1,465 closed on Thursday. The intraday low strengthened marginally to N1,322 per dollar as against N1,351 on Thursday.

Dollar supplied by willing buyers and willing sellers increased by 34.84 percent to $113.78 million on Friday from $84.38 million recorded on Thursday.

The naira on Friday fell to one month-low of 1,470 against the dollar, on the parallel market also known as black market, following dollar shortage and the activities of speculators. The local currency depreciated to as low as N1,510 as of March 21, 2024 at the parallel market.

The FX market activity level waned as average turnover at NAFEM declined by 31.0 percent week-on-week to close at $894.3 million as of May 9, 3024, according to a report by the Afrinvest Securities Limited. “We expect the naira to extend its decline barring any interventions,” analysts at Afrinvest said.

The directors of the International Monetary Fund (IMF) have advised the Central Bank of Nigeria (CBN) to adopt a well‑designed Foreign Exchange (FX) intervention framework to ensure the stability of the currency.

The directors welcomed the removal of foreign exchange market distortions and encouraged the Nigerian authorities to continue improving the functioning of the FX market.

According to the Washington D.C. based Fund, gross international reserves declined in 2023 amid persistent capital outflow pressures. The naira depreciated sharply after the unification of the official foreign exchange windows in June 2023. “Following monetary policy tightening in February and March 2024 and a resumption of FX interventions, the naira has started to stabilize,” the IMF directors said in the concluded Article IV consultation with Nigeria.