Naira Slides to N1,725 on Parallel Market, N1,653/$1 in Official Trading

The Nigerian naira continued its depreciation against the U.S. dollar, closing at N1,725 per dollar in the parallel market and N1,653 per dollar on the Nigeria Autonomous Foreign Exchange Market (NAFEM) on Tuesday, October 23, 2024. This marks a N5 drop in the parallel market from previous rates, further widening the gap between the official and black market exchange rates.

Despite the decline, the International Monetary Fund (IMF) has noted improvements in currency stability, citing the Central Bank of Nigeria’s (CBN) efforts to clear foreign exchange backlogs and raise benchmark interest rates. The 30-day moving average of Nigeria’s external reserves also increased to $39.156 billion as of October 21, 2024.

The naira’s official value at NAFEM fell by 3.1% or N49.86 from the previous day’s rate of N1,603.16. With the parallel market rate now hovering near N1,725, the gap between the official and black market exchange rates has approached N100. However, the currency has not yet returned to the record low of N1,900 to the dollar experienced in February 2024, which had sparked concerns of further depreciation to N2,000 by year-end.

The IMF’s Fiscal Monitor report credits recent policy actions by the CBN for helping stabilize the naira. “In Nigeria, rate hikes and the clearing of overdue central bank foreign exchange obligations have helped the naira show more signs of stability,” the report stated.

CBN Governor Olayemi Cardoso had earlier cleared $7 billion in forex backlogs, part of a broader set of measures aimed at managing Nigeria’s foreign exchange crisis. Additionally, the CBN’s Monetary Policy Committee (MPC) raised the Monetary Policy Rate (MPR) by 50 basis points to 27.25% in September, marking an 850 basis point increase so far in 2024, in an effort to combat rising inflation.

In a bid to curb speculation and eliminate price distortions in the forex market, the CBN will launch the Electronic Foreign Exchange Matching System (EFEMS) in December 2024. Currently in its test phase, the EFEMS is expected to enhance transparency, foster a market-driven exchange rate, and provide better regulatory oversight.

The CBN has instructed authorized dealers to begin submitting reports on all foreign exchange transactions, ensuring that data is reflected in real-time. The new system aims to reduce speculative activities and provide public access to a transparent exchange rate, in collaboration with the Financial Markets Dealers Association (FMDA).