The Naira has depreciated significantly, losing 84% of its value within 11 months, dropping from N907.10 in January to N1,672.69 by the end of November 2024.
This steep decline comes as Deposit Money Banks prepare to transition to conducting foreign exchange (FX) trading via Bloomberg’s BMatch system starting December 2, 2024.
Weekly Performance in FX Markets
Last week, the Naira weakened by N20 against the dollar in the Nigerian Autonomous Foreign Exchange Market despite the Central Bank of Nigeria’s (CBN) intervention. Spot data from the FMDQ platform indicated that the Naira closed at N1,672.69 per dollar, even as the CBN sold $102 million to banks to support the market.
Conversely, the parallel market saw a slight recovery as the exchange rate improved by N22 to close at N1,728.00 per dollar, driven by easing demand pressures. Analysts attributed the improvement to increased foreign currency remittances from Nigerians in the diaspora, which helped enhance dollar liquidity in the informal market.
Narrowing Market Spread
As a result of the shifting dynamics, the gap between the official and parallel market rates narrowed to 3.31%, down from 5.89% the previous week, according to TrustBanc Financial Group. Analysts noted a 0.17% and 0.98% appreciation of the Naira in November. However, Nigeria’s external reserves experienced a slight dip, declining by $34.92 million to $40.24 billion due to slowed inflows.
Anticipation of Eurobond Issuance
With Nigeria poised to issue a $1.7 billion Eurobond in December, analysts expect a short-term boost to FX reserves. This could provide the CBN with greater capacity to stabilize the Naira in the near to medium term, according to a report from Cordros Capital Limited.
CBN’s Push for FX Market Reform
At the 59th Annual Bankers’ Dinner hosted by the Chartered Institute of Bankers of Nigeria, CBN Governor Olayemi Cardoso emphasized the bank’s commitment to restoring the Naira’s value. He announced the introduction of an electronic FX matching system to unify Nigeria’s exchange rates and eliminate distortions in the market.
“The electronic FX matching system has proven effective in other markets and will enhance price discovery, transparency, and stability in the FX market,” Cardoso stated. He dismissed claims of a significant demand-supply gap, attributing volatility to speculative behavior and panic buying.
Boosting Diaspora Remittances
Cardoso also highlighted efforts to bolster diaspora remittances, noting that monthly inflows doubled from $300 million in 2023 to nearly $600 million by August 2024. He encouraged financial institutions to develop products tailored to the diaspora, enabling them to support families while investing in Nigeria.
To facilitate this, the CBN introduced non-resident BVN registration, aiming to integrate the diaspora more deeply into the financial system.
Addressing Historical Challenges
The governor also addressed the economic cost of previous FX subsidy regimes, which resulted in potential revenue losses of N6.2 trillion in 2022, compared to N4.5 trillion from fuel subsidies. He underscored that such funds could have been redirected to critical sectors like education, healthcare, and infrastructure.
Cardoso concluded by highlighting the progress made through the CBN’s recent reforms, expressing optimism about their continued impact on Nigeria’s financial stability and economic growth.
