The Nigerian naira weakened against the US dollar on Tuesday in the foreign exchange (FX) market due to a slight shortage of dollars available for trade.
According to data from FMDQ, which tracks official exchange rates, the naira fell by 0.22%, closing at ₦1,498.95 per dollar. This is the second time the currency has lost value this week, following a strong performance in January.
Despite this depreciation, Nigeria continues to receive a steady supply of foreign currency. Major contributors to the FX inflows include international oil companies, foreign investors, and Nigerian businesses that export goods abroad.
Over $871 Million in FX Inflows Last Week
Last week, over $871 million flowed into Nigeria’s official foreign exchange market. This helped slow down the decline of the naira. Financial analysts believe that as long as confidence in the economy remains strong, FX inflows will continue to support the naira.
Naira Strengthens in the Parallel Market
On the black market, where individuals and businesses buy and sell dollars outside the official banking system, the naira actually gained value. This followed a recent decision by the Central Bank of Nigeria (CBN) to extend the deadline for Bureau de Change (BDC) operators to access dollars at the official rate.
Under this new rule, BDC operators are allowed to purchase $25,000 from banks at the official rate. This move is aimed at increasing the availability of dollars for small transactions like school fees, travel, and medical bills.
A market survey by CardinalStone Limited found that the naira strengthened by 0.31%, rising to ₦1,605 per dollar in the black market. As a result, the gap between the official rate and the parallel market rate has narrowed to ₦107 per dollar.
Breakdown of FX Inflows
A report by Coronation Research analyzed the sources of the $871 million inflows into the Nigerian forex market:
- Central Bank of Nigeria (CBN): 9.97%
- Foreign Portfolio Investors (FPIs): 32.12%
- Private Companies (Non-bank corporates): 32.95%
- Nigerian Exporters: 24.20%
- Other sources: 0.76%
This data suggests that foreign investors and private companies play a major role in supporting Nigeria’s forex reserves, while the CBN contributes a smaller portion.