In a stark turn of events, the foreign exchange (FX) market in Nigeria experienced a significant 56.58 percent decline in dollar supply on Wednesday, just two days after witnessing a surge in liquidity driven by the Central Bank of Nigeria (CBN)’s interventions.
An analysis of the FX market auction showed that banks and other key players in the market sold a total of $117.87 million on Wednesday, a sharp drop from the $271.50 million recorded just the day before on Tuesday at the official FX market.
As a result of this sudden shortage, the Nigerian naira depreciated by 0.29 percent. Data from the FMDQ Exchange revealed that the dollar was quoted at N1,503.38 on Wednesday, compared to N1,499.07 on Tuesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
The market dynamics further showed that the intraday high closed at N1,582 per dollar on Wednesday, reflecting a weakening compared to the N1,550/$1 closure seen on Tuesday. Conversely, the intraday low appreciated to N922.38 on Wednesday, indicating strength compared to the N1,000 quoted in spot trading the previous day.
At the parallel market, commonly referred to as the black market, the naira exchanged with the dollar at rates ranging between N1,533/$1 and N1,590/$1 on Wednesday, further underscoring the pressure on the Nigerian currency.
The impact of this depreciation is felt keenly by businesses and households across Nigeria. Businesses reliant on imported goods face increased costs as the value of the naira decreases, potentially leading to higher prices for consumers. Additionally, companies with foreign debts may find their repayment obligations escalating, putting further strain on their finances.
For households, the depreciation of the naira means a decrease in purchasing power, as imported goods become more expensive. Necessities, as well as luxury items, could see price hikes, making it challenging for families to maintain their standard of living.
Analysts are closely monitoring the situation amidst concerns over the sustainability of the FX market and its implications for the broader economy. The sudden drop in dollar supply and subsequent depreciation of the naira highlight the fragility of Nigeria’s foreign exchange system, prompting calls for measures to stabilize the market and ensure currency stability in the long term.
