Naira Gains N43 in September Despite Parallel Market Losses
One of the major developments in September was the sharp increase in Nigeria’s external reserves. Data from the Central Bank of Nigeria (CBN) indicates that as of September 27, 2024, the country’s foreign currency reserves surged by 15.26 percent since the beginning of the year. This $5.04 billion rise pushed Nigeria’s total reserves to $38.06 billion, a significant leap from the $33.02 billion recorded earlier in the year. This growth in reserves is crucial for the CBN as it bolsters its ability to defend the naira in the foreign exchange (FX) market and provide liquidity to stabilize the currency.
The rise in external reserves is a positive signal for Nigeria’s economy, particularly for international investors and financial analysts monitoring the country’s ability to manage its dollar obligations. A strong reserve position allows the CBN to intervene more aggressively in the FX market, which it did throughout September, to ensure the naira’s stability.
Naira’s Gains in the Official FX Market
In the official Nigerian Autonomous Foreign Exchange Market (NAFEM), the naira demonstrated a strong performance. It closed the month of September at N1,541.94 to the US dollar, a marked improvement from N1,585.77 on the first trading day of the month. This N43.83 gain is attributed to a combination of increased dollar supply and the CBN’s active role in the market.
Data from the FMDQ Securities Exchange Limited showed that dollar turnover in the market surged by an astonishing 155.49 percent over the month. On September 30, 2024, dollar turnover reached $181.86 million, compared to just $71.18 million at the beginning of the month. This surge, driven by increased activity from the CBN and other major market players, provided the liquidity needed for the naira’s recovery.
CBN’s Intervention with BDC Operations
The CBN also played a pivotal role in maintaining FX market stability by supplying dollars to Bureau De Change (BDC) operators. The central bank provided $20,000 twice during the month to each operator, selling dollars at rates of N1,580 on September 6 and N1,590 on September 25. These interventions aimed to meet the rising demand for foreign currency, particularly among smaller traders and businesses.
The CBN’s dollar sales to BDCs are part of its broader strategy to manage the exchange rate and curb inflationary pressures. By supplying the parallel market with dollars, the CBN hopes to reduce the disparity between the official and parallel market rates. However, the challenge remains that the demand for dollars in Nigeria continues to outstrip supply, particularly in unofficial channels.
Pressure on the Parallel Market
Despite the naira’s gains in the official market, the currency faced depreciation in the parallel market, where it fell by 2.79 percent in September. The naira closed the month at an average of N1,683 per dollar, down from N1,635 at the start of September. This N47 loss underscores the continued pressure in the black market, where individuals and businesses unable to access dollars through official channels are forced to pay higher rates.
The growing gap between the official and parallel market rates raises concerns about the sustainability of the naira’s performance in the long term. While the CBN’s interventions in the official market have provided some relief, the underlying issue of dollar scarcity in the broader economy remains unresolved. For many businesses and individuals, the parallel market is their only means of accessing foreign currency, and the rising costs in this market are adding to Nigeria’s inflationary pressures.
The Road Ahead for the Naira
Looking ahead, the naira’s future trajectory will depend heavily on Nigeria’s ability to attract foreign investment, boost exports, and manage its monetary policies effectively. As noted by a Lagos-based financial analyst, the CBN will need to strike a delicate balance between providing dollar liquidity and ensuring long-term market stability. While the naira’s performance in the official market is a positive sign, the pressure on the parallel market suggests that more work needs to be done to stabilize Nigeria’s broader FX environment.
social media
- “Finally, some positive news for the naira! But the gap between official and black market rates is still worrying. #NairaWatch #CBNUpdates” – @OluchiBanks
- “Naira gains in the official market, yet the black market keeps rising. When will ordinary Nigerians see relief? 😞 #ForexNigeria” – @Tolu_Ademola
- “CBN stepping in to stabilize the naira is great, but we need sustainable solutions to fix this mess. #NairaOnTheEdge” – @FemiMoney
- “How can we be celebrating naira recovery when it’s getting worse for us in the parallel market? The gap is just too wide! 😡 #ForexStruggles” – @AdaobiNaira
- “While the naira’s recovery in the official market is a win, real economic relief is still out of reach for many Nigerians. #EconomicCrisisNG” – @ChikeUgo
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