Naira pressure continues on increased demand for dollars

The foreign exchange pressure continued on Monday as Naira lost 0.57 percent (N5) on increased demand for dollars at the parallel market.

One dollar was traded at N870 in some areas on Monday, which was lower than N865 on Friday on the black market.

In some areas in Lagos, dollars were sold at N865. Traders attributed the naira depreciation to solid demand for dollars by travellers.

At the Investors’ and Exporters’ (I&E) forex window, the naira weakened by 1.24 percent as the dollar was quoted at N777.82 on Monday as against N768.16 on Friday, data from the FMDQ indicated.

Willing buyers and sellers maintained bids as high as N855.00 on Friday, which was weaker than the N844.00 bid on Thursday.

The market auction also recorded lower bids of N665.00, stronger than the N700.00 bids maintained on Thursday at the I&E window.

The daily foreign exchange market turnover increased by 33.95 percent to $77.99 million on Friday from $58.22 million recorded on Thursday.

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Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, said the foreign exchange market is evidently under pressure as a result of a number of factors.

There was a curious surge in monetary expansion in the last month. The money supply grew by an unprecedented 15 percent in one month between May and June 2023. Broad money grew by over N9 trillion, from N55.7 trillion to N64.9 trillion. This surge in monetary growth is unprecedented.

“Obviously, this must have had an effect on the exchange rate. The monetary authorities should investigate this drastic growth in the money supply and take steps to curb subsequent expansion. Such dramatic growth in money supply poses a significant risk to macroeconomic stability, especially price stability”, he said.

According to him, over the last few years there had been a cumulative backlog of unmet foreign exchange demand, running into billions of dollars due to acute illiquidity in the foreign exchange market. With a more liberalized forex market, the pressure of the backlog of unmet demands and other maturing forex-related obligations has been unleashed on the investors’ and exporters’ window.