Naira Loses Ground Against the Dollar as Central Bank’s Momentum Fades

The Nigerian naira experienced a significant setback against the US dollar on Monday, plummeting to an average of 1,030 naira per dollar in the parallel market. This marks an 8.42% decline, equating to an N80 loss, compared to its previous week’s closing rate of 950 naira per dollar.

This downturn is particularly striking as it’s the first depreciation observed since the Central Bank of Nigeria initiated efforts to clear its FX backlog just last week. Currency traders, often referred to as Bureaux De Change operators, revealed that the naira was fluctuating between 990 and 1,030 naira per dollar.

According to a trader named Awolu, “The dollar is available at 995 naira if you wish to sell, and if you intend to purchase from me, it will cost you 1,020 naira.” Meanwhile, another trader named Kadri noted, “You can sell the dollar for 960 naira, but if you’re buying, it’ll be at 990 naira.”

Aminu Gwadabe, the President of the Association of Bureaux De Change Operators of Nigeria, offered an explanation for the dollar’s newfound strength against the naira. He stated that individuals who had previously purchased dollars at higher rates were now reluctant to accept the currency’s decline, a reaction to the Central Bank of Nigeria’s recent moves.

Last week, it was reported that the apex bank had commenced the settlement of overdue matured FX forwards owed to various banks, a measure aimed at injecting liquidity into the foreign exchange market after weeks of the naira reaching historic lows. Finance Minister Wale Edun estimated the outstanding forward payments at around $6.7 billion.

Initially, this action had led to a positive appreciation of the naira, gaining approximately 220 naira after closing the week at 950 naira per dollar in the parallel market. However, the naira’s momentum appears to have been short-lived. Confirming the dollar’s closing rate, Aminu Gwadabe stated, “In the afternoon, it was 1,015 and 1,020 naira per dollar, ultimately closing at 1,030 naira per dollar.”

He emphasized the role of speculators and the need for sustained confidence in the market, stating, “Speculators are always looking at elements of sustainability. Once they sense that the injection is not continuous, they begin to react. It is the reaction of the market we are witnessing. Also, there is resistance. There are people that bought at a higher price that this does not favor. People are not willing to take further losses.”

Gwadabe stressed the importance of fostering market confidence and ensuring continued liquidity. With the parallel market primarily serving retail customers, it remains uncertain how liquidity will be introduced to this sector, emphasizing the need for proactive measures in the foreign exchange market.