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Tuesday, April 23, 2024

Naira plummets despite increased forex supply, widening official, parallel market gap

Persistent challenges in Nigeria's forex market prompt concerns over currency stability and economic impact

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The Nigerian naira witnessed a significant decline across both official and parallel foreign exchange markets, exacerbating worries about the nation’s economic stability. The depreciation, which unfolded against the backdrop of heightened dollar demand, underscores mounting concerns over the widening gap between official and parallel market rates.

At the close of trading activities on Friday, the national currency recorded a downward slide to N1,670/$ from N1,600/$ in the parallel market, signaling a notable decrease in its value. Meanwhile, the official rate also experienced a decline, settling at N1,537/$ compared to N1,498/$ recorded the previous day.

The widening gap of N133 between official and parallel market rates has reignited apprehensions regarding potential round-tripping activities, further complicating efforts to stabilize the currency.

Despite concerted efforts to address the forex challenges, including increased dollar supply totaling $3.83 billion through the Nigerian Autonomous Foreign Exchange by Deposit Money Banks, the currency’s plight persists. The enhanced liquidity at the Nigerian Autonomous Foreign Exchange Market (NAFEM) followed directives by the Central Bank of Nigeria aimed at bolstering liquidity in the FX market.

Commercial banks, the Central Bank of Nigeria, and international oil firms emerged as primary sellers of forex at NAFEM, contributing to the surge in forex transactions. However, concerns linger over the sustainability of these measures amidst growing disparities between official and parallel market rates.

In response to the prevailing economic uncertainties, banking institutions and International Money Transfer Operators (IMTOs) are gearing up to implement operational adjustments to align with revised remittance frameworks. The Central Bank’s recent directives, including restrictions on personal travel allowance payments and revenue repatriation by international oil companies, underscore the depth of the currency crisis.

The Governor of the Central Bank of Nigeria, Olayemi Cardoso, acknowledged the significant rise in FX transactions, citing positive outcomes from recent reforms. However, challenges persist, with the gap between official and parallel market rates widening, raising concerns about currency stability and economic resilience.

As Nigeria grapples with inflationary pressures and exchange rate volatility, stakeholders emphasize the urgent need for robust economic policies to safeguard the currency’s value and bolster overall economic stability. The National Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) has called for concerted efforts to address the twin challenges of naira devaluation and inflation, advocating for policies that promote local production and stabilize prices.

Amidst the economic uncertainties, the call for enhanced security and infrastructure in farming communities echoes, underscoring the imperative of mitigating risks faced by farmers and enhancing agricultural efficiency. As Nigeria navigates the complexities of its economic landscape, concerted efforts are imperative to mitigate the adverse effects of currency depreciation and inflation on the nation’s socioeconomic fabric.

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