The naira continued to face pressure in Nigeria’s foreign exchange market, falling to N1,740 per dollar in the parallel market on Monday, marking a loss of N8 from the previous day’s rate of N1,732/$. This depreciation persists despite a surge in FX turnover and an increase in the country’s external reserves.
In the official market, the naira closed at N1,681.42 per dollar, down by 0.2 percent from Friday’s rate of N1,678.87/$. This decline comes amid a record FX turnover of $1.4 billion on Friday, as reported by FMDQ Securities Exchange Limited, a substantial jump from the previous day’s turnover of $244.96 million.
According to the Central Bank of Nigeria (CBN), the country’s external reserves rose to $40.08 billion as of November 7, 2024, representing a 21.4 percent increase from $33.02 billion at the beginning of the year. Analysts at Afrinvest Securities Limited anticipate the naira’s continued trade within a similar range, citing recent rate cuts in major economies, which have encouraged carry-trade investments in emerging markets, including Nigeria.
Reports indicate that Nigeria’s reserves, currently sufficient to cover 11.6 months of merchandise imports and 8.1 months when services are included, have strengthened significantly. This improvement is partly due to increased foreign capital inflows, drawn by Nigeria’s favourable carry trade conditions under the CBN’s restrictive monetary policy, according to a recent analysis by FBNQuest. The stringent approach has made Nigeria attractive for foreign investors seeking high-interest environments.
The weakened naira has also curbed imports, contributing to reserve stability. The FBNQuest report notes that the higher costs associated with currency depreciation have discouraged imports, with Nigeria’s merchandise imports dropping 20 percent year-on-year, from $57.1 billion in June 2023 to $45.5 billion in June 2024.
FBNQuest expects Nigeria’s official reserves to increase further, spurred by steady foreign portfolio investment (FPI) inflows linked to Nigeria’s positive interest rate differentials relative to developed economies.
The analysis by Afrinvest further highlighted factors influencing global crude oil prices, which rose by 3.5 percent last week to $75.63 per barrel due to geopolitical events. OPEC+ recently delayed a planned production increase, and Hurricane Rafael temporarily shut down a significant portion of production in the Gulf of Mexico. Renewed Middle East hostilities have also heightened concerns about supply chain disruptions, putting additional upward pressure on oil prices.
On the domestic front, CBN’s foreign reserves reached $40.0 billion as of November 7, marking the highest level in 32 months. However, the Naira Autonomous Foreign Exchange Market (NAFEM) saw reduced activity, with average daily turnover falling by 14.2 percent to $976.5 million. In the NAFEM window, the naira closed at N1,678.87 per dollar, weakening by 70 basis points, while in the parallel market, it strengthened slightly, trading at N1,720.00 per dollar.
