The naira faced a significant decline against the dollar at both the official and parallel foreign exchange markets, ending the week on a negative note.
According to data from the FMDQ, the naira depreciated to N1598.56 per dollar on Friday, compared to N1593.93 per dollar on Thursday. This represents a loss of N4.63. In the parallel market, the naira experienced its worst drop, falling by N25 from N1620 to N1645 per dollar on Friday.
The decline in the naira’s value is accompanied by an increase in foreign exchange transaction turnover. On Friday, the turnover rose to $172.80 million, up from $155.52 million on Thursday, as per FMDQ data.
When looking at the week-on-week performance, the naira lost N28.48 per dollar compared to the N1570.14 per dollar it exchanged at the official market last Friday. In the parallel market, the naira fell by N30 from the previous week’s exchange rate of N1615 per dollar.
The ongoing fluctuations in Nigeria’s foreign exchange market are largely attributed to the Central Bank of Nigeria’s Retail Dutch Auction System. This system was reintroduced with the aim of stabilizing the increase in foreign exchange demand.
The Retail Dutch Auction System is a method used to manage and control the supply of foreign currency in the market. By regulating the amount of dollars available for exchange and adjusting the rates at which they are offered, the Central Bank hopes to curb the volatility in the forex market.
Despite these measures, the naira’s value continues to be under pressure. The increase in foreign exchange turnover suggests a higher level of trading activity, which might indicate a growing demand for dollars in the market. However, this heightened demand could also be contributing to the naira’s depreciation as more naira are being exchanged for a limited supply of dollars.
The Central Bank of Nigeria’s efforts to stabilize the forex market through the Retail Dutch Auction System are part of a broader strategy to address currency volatility. This approach aims to balance supply and demand by allowing the market to determine the exchange rate within a controlled framework.
However, the effectiveness of this system can vary based on a range of factors, including global economic conditions, domestic economic policies, and investor sentiment. The naira’s recent performance suggests that more work may be needed to achieve greater stability in the forex market.
Overall, the week’s developments highlight the ongoing challenges in Nigeria’s forex market. The naira’s decline against the dollar underscores the need for continued monitoring and intervention to manage currency fluctuations and support economic stability. As the Central Bank of Nigeria navigates these challenges, stakeholders will be closely watching the impact of its policies on both the official and parallel forex markets.
The naira’s depreciation against the dollar in both official and parallel markets reflects a broader trend of currency instability. The increase in foreign exchange transaction turnover indicates heightened market activity, while the Central Bank’s measures aim to address demand pressures. The effectiveness of these strategies will be crucial in shaping the future stability of Nigeria’s forex market.
