The Nigerian foreign exchange (FX) market will likely witness further depreciation in the value of the naira despite a rise in the external reserves.
Nigeria’s external reserves rose by 0.69 percent to $32.642 billion as of May 16, 2024 from $32.418 billion in May 9, 2024 data from the CBN indicated.
The naira fell by 2.07 percent, week-on-week to close to N1,497.33 per dollar on Friday compared to N1,466.31 closed on the previous week, at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
“We anticipate extended pressure on the Naira as FX supply-demand mismatch persists,” analysts at Afrinvest Securities Limited said in a report.
In five trading days, the naira weakened by 1.28 percent as the dollar was quoted at N1,497.33 on Friday as against N1,478.11 quoted on Monday, according to the data compiled from the FMDQ Securities Exchange Limited.
On daily trading basis, the local currency appreciated by 2.45 percent from N1,533.99 per dollar exchanged on Thursday at NAFEM.
Read also: Nigerian Central Bank intervention fails to stem naira slide
The naira depreciated at the parallel market, popularly called black market, falling to an average rate of N1,521.66 per dollar, last week.
Dollar supplied by willing sellers and willing buyers declined by 63 percent, week-on-week to a total of $991.90 million last week from $608.50 million recorded the previous week.
The dollar supplied day-on-day dropped by 69.39 percent to $83.50 million on Friday from $272.86 million recorded on Thursday.
The report noted that the price of Brent benchmark crude rose by 1.4 percent w/w, to close at $83.98/bbl, after U.S. consumer inflation readings came in softer than expected – boosting hopes for firmer demand as the travel-dense summer period approaches.
For analysts at Comercio Partners, the naira’s trajectory will likely be influenced by a range of factors. The CBN’s potential policy rate adjustments could attract foreign investors back to Nigeria’s fixed-income market, supporting the currency.
They said sustained appreciation will require broader economic diversification efforts and continued reforms to address FX market speculation and improve regulatory frameworks.
“Detailed analysis of sector-specific impacts, such as the manufacturing and export sectors, will provide deeper insights into how currency fluctuations affect key industries. Monitoring trends in foreign investment, remittances, and FX reserves utilization will also be crucial in understanding Nigeria’s economic resilience and its ability to navigate global economic challenges,” the analysts said.
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