The Nigerian foreign exchange (forex) market is currently experiencing a significant downturn, with average daily turnover hitting its lowest level since January 2024. This decline in forex activity has coincided with a steady depreciation of the naira, which is now nearing N1,600 per US dollar in the official market, underscoring the crucial role of forex liquidity in maintaining exchange rate stability.
Decline in Forex Turnover
Recent data reveals a sharp decline in average daily forex turnover, which dropped to $143.97 million in August 2024, the lowest since January 2024, when it stood at $97.36 million. While forex turnover fluctuated in the following months, peaking at $252.55 million in March, it has been on a downward trajectory since.
Here’s a look at the monthly turnover data:
- January 2024: $97.36 million
- February 2024: $222.85 million
- March 2024: $252.55 million
- April 2024: $194.16 million
- May 2024: $209.39 million
- June 2024: $195.95 million
- July 2024: $184.34 million
- August 2024: $143.97 million
The consistent decline, particularly the 21% drop observed in the first two weeks of August 2024, reflects a growing scarcity of dollars in the market. This situation has been exacerbated by the Central Bank of Nigeria’s (CBN) policies, especially its inconsistent dollar supply.
Impact on Exchange Rates
The declining forex turnover has directly impacted the naira’s value in the official market. In early July 2024, the exchange rate averaged N1,508 per dollar. By late August 2024, the naira had depreciated to nearly N1,600 per dollar.
This depreciation has occurred despite a 130% surge in remittance inflows, which reached $553 million. The trend highlights the correlation between forex turnover and exchange rates, with reduced liquidity contributing to the naira’s weakening. As dollar supply constraints increasingly influence the currency’s stability, Nigerian businesses are growing increasingly concerned.
A recent CBN survey indicates that many businesses anticipate further devaluation of the naira in the coming months, driven by ongoing pressures in the forex market. The current decline in forex turnover signals tightening dollar availability, exacerbating the upward pressure on the naira-dollar exchange rate.
Inconsistent Dollar Supply and Market Sentiment
Market participants, including Bureau De Change (BDC) operators, have expressed concerns over the CBN’s inconsistent dollar supply, which they argue is hindering efforts to stabilize the naira. The CBN’s approach to dollar auctions and its management of forex reserves are viewed as pivotal factors in the current market dynamics.
The lack of a predictable and steady supply of dollars has eroded market confidence, contributing to speculative activities and further weakening the naira. The sharp decline in average daily forex turnover to its lowest level since January 2024 has had significant repercussions for the naira, pushing it closer to N1,600 in the official market.
Related News
- gdp-growth-may-not-translate-to-improved-living-standards-for-nigerians-report/
- United Capital Plc’s Ambitious Capital Restructuring: Essential Insights for Investors
This trend underscores the critical importance of forex liquidity in maintaining exchange rate stability. As the CBN continues to grapple with the challenges of managing dollar supply, the market remains vulnerable to further depreciation, especially if forex turnover continues to fall. The outlook for the naira remains uncertain, with businesses and market operators bracing for potential further devaluation in the coming months.
