A surge in demand for dollars in the parallel market, driven by both banks and end-users, combined with slow forex disbursement to BDCs by the Central Bank of Nigeria (CBN), led to a 23% depreciation of the Naira against the dollar last week, marking its worst weekly performance since February.

Despite the CBN’s intervention in the official Nigeria Foreign Exchange Market (NAFEM) on Friday, which resulted in the appreciation of the Naira in the parallel market, currency dealers and analysts expressed uncertainty about the Naira’s fortunes in the coming week, citing the pace and speed of CBN intervention as crucial factors.

Over the course of four consecutive days, the Naira depreciated by N285 (25%) to N1,405 per dollar on Thursday, April 25th, from N1,140 on Friday, April 19th. Similarly, in the official market, the Naira depreciated by N169.24 (9.9%) to N1,339.23 per dollar on Friday, April 26th, from N1,169.99 per dollar on Friday, April 19th.

The depreciation of the Naira was attributed to a combination of factors, including the exploitation of exchange rate

The depreciation of the Naira was attributed to a combination of factors, including the exploitation of exchange rate differentials by banks and end-users in the parallel market. Banks took advantage of the lower exchange rate in the parallel market to buy dollars cheaply and resell them at higher official rates, while some end-users bought dollars in the parallel market, deposited them in their domiciliary accounts, and sold them to banks at higher official rates.

Additionally, slow forex disbursement to BDCs by the CBN exacerbated the situation, with some BDCs waiting for more than two weeks after making payments in Naira to the apex bank before receiving dollars.

The situation was further aggravated by the absence of CBN intervention in the official market for several weeks, coupled with dwindling inflows from Foreign Portfolios and FPIs.

To address the depreciation of the Naira, the CBN intervened in the official market on Friday and increased the speed of dollar disbursement to BDCs. Additionally, the CBN’s monitoring task force conducted enforcement activities, leading to the appreciation of the Naira in the parallel market on Friday.

Currency dealers expressed optimism that the Naira would further appreciate in the coming week, citing coordinated efforts by the CBN and security agencies to address illegal activities in the forex market. They also called for measures such as the creation of investment bonds for Nigerians in the diaspora and the establishment of non-export domiciliary accounts with low minimum deposit requirements to support the Naira’s stability.