The naira experienced its first loss at the official foreign exchange (FX) market on Tuesday after a four-day streak of gains to close at N1,582.09 per dollar.
This decline follows the Central Bank of Nigeria’s (CBN) resumption of retail dollar sales to banks, which reintroduced pressure on the local currency.
Data from the FMDQ indicated that the naira fell by 0.70 percent, a shift from Monday’s closing rate of N1,570.99.
The decline represents a reversal after several days of strengthening, reflecting the ongoing volatility in Nigeria’s FX market.
In the parallel market, commonly referred to as the black market, the naira showed a marginal appreciation, closing at N1,598 per dollar, slightly up from N1,600 the previous day.
This divergence between the official and parallel market rates underscores the complexities in Nigeria’s foreign exchange landscape.
The resumption of dollar sales by the CBN led to a decrease in dollar supply, with willing buyers and sellers trading $201.43 million on Tuesday, down by 18.26 percent from the $246.44 million recorded on Monday.
This reduction in liquidity contributed to the naira’s weakening, as demand outpaced the available supply.
Nigeria’s external reserves also saw a slight decline, dropping by 0.68 percent to $36.620 billion as of August 12, 2024, down from $36.872 billion recorded just five days earlier.
This dip in reserves, which are crucial for the CBN’s ability to defend the naira, adds another layer of concern for market watchers.
The recent volatility in the FX market follows a period of relative stability, which had been attributed to increased market confidence in the CBN’s efforts to stabilize the exchange rate.
Olayemi Cardoso, the governor of the CBN, emphasized the importance of maintaining this stability, noting its significant impact on inflation and the overall economic outlook.
Cardoso warned that while the recent stability has been encouraging, it remains fragile.
“This equilibrium must be carefully managed to avoid jeopardizing the progress made in attracting more capital flows and sustaining market stability,” he said.
Members of the CBN’s Monetary Policy Committee (MPC) have also highlighted the importance of exchange rate stability.
Lydia Shehu Jafiya, an MPC member, noted that foreign exchange inflows improved by 38.26 percent between April and May 2024, driven by increased receipts of oil and non-oil proceeds.
However, she acknowledged that the market’s recent stability is at risk if current pressures continue.
As Nigeria navigates these challenges, the CBN’s actions in the coming weeks will be closely watched by both local and international investors.
The naira’s performance in the FX market remains a critical indicator of broader economic health, with implications for inflation, foreign investment, and overall economic stability.