Naira Dips to N854.61/$1: Forex Turnover Plummets by $181.30 Million

Forex turnover experienced a notable decline, dropping by 21.45% to $181.30 million on December 20, 2023, as the Nigerian naira faced depreciation against the US dollar, closing at N854.61/$1 in the official market, as reported by Infostride News.

The domestic currency demonstrated a 1.5% depreciation, settling at N854.61/$1 at the close of the business day, according to data from the Nigerian Autonomous Foreign Exchange Market (NAFEM), where official forex trading occurs. This represented a gain of N9.73 or a 1.15% increase compared to the previous closing rate of N844.85/$1 on Tuesday.

The intraday high and low recorded were N1240/$1 and N700/$1, respectively, reflecting a substantial spread of N540/$1. Data obtained from the official NAFEM window revealed a forex turnover of $181.30 million at the end of the trading day, indicating a significant 21.45% decrease compared to the previous day’s figures.

However, at the parallel forex market where forex is unofficially traded, the naira experienced appreciation. The exchange rate saw a 0.24% uptick, quoted at N1238/$1, while peer-to-peer traders quoted around N1187.30/$1, presenting a contrasting scenario to the official market.

Economists and financial experts have shared their perspectives on the forex situation:

Mr. Olatunde Amolegbe, the former President and Chairman of the governing council of the Chartered Institute of Stockbrokers (CIS) and Managing Director of Arthur Steven Asset Management Limited, emphasized the importance of confidence for exchange rate stability. In an exclusive conversation with Infostride News, he stated, “Confidence is what makes foreigners want to come to invest in your country and makes locals want to keep their investments here. In the absence of these dynamics, demand will naturally outstrip supply, and you see the sort of instability we are experiencing now.”

Amolegbe expressed optimism about the decision to clear FX commitment backs, noting that it would be positive for market confidence. However, he cautioned that the desired impact might manifest in the medium term rather than the short run. He also highlighted the need for structural changes, including improved security, better infrastructure, increased foreign direct investments, and encouragement of local production, to foster exchange rate stability.

Bismarck Rewane, the Managing Director/CEO of Financial Derivatives Company Limited, anticipated continued volatility in the naira due to lingering forex supply concerns. He pointed out that the scarcity of dollars would likely lead to speculative buying, with more market participants opting for long positions on the dollar while shorting the naira.

As the forex dynamics continue to evolve, economists emphasize the significance of addressing both short-term measures, such as clearing FX commitment backs, and long-term structural changes to build confidence and stability in the foreign exchange market. The ongoing efforts to manage system liquidity and encourage import substitution are seen as steps in the right direction, although the ultimate impact may take time to materialize.