Despite an increase in foreign reserves to $35.18 billion and the Central Bank of Nigeria’s (CBN) injection of $122.67 million into the market, the naira has experienced a significant depreciation.
On Friday, July 12, the naira closed at N1,563.80 against the US dollar, marking a new low for July.
This depreciation follows a slight appreciation the previous day and comes despite the CBN’s sale of $122.67 million to authorised dealers over two days.
Throughout the week, foreign exchange (FX) turnover fluctuated, peaking at $348.82 million on Thursday but sharply declining by 63.73 percent to $126.50 million on Friday.
The market saw a range of N1,496.46 to N1,586 per dollar, edging closer to the N1,600 mark.
Analysts say these developments underscore ongoing challenges in stabilising the naira amidst economic uncertainties and fluctuating market conditions.
This comes after the CBN governor, Olayemi Cardoso, assured that the naira would experience more stability due to the elimination of distortions and increased stakeholder confidence in the new forex market regime.
Similarly, data from the CBN revealed that Nigeria’s gross reserves rose to $35.18 billion as of July 10, representing a growth of 6.35 percent from the $33.08 billion gross reserve balance as of June 10, 2024.
This is the first time the reserves have crossed the $35 billion mark under the administration of President Bola Tinubu.
According to CBN data, as of May 30, 2023, the reserves were $35.09 billion, about 14 days before the introduction of the FX unification policy in June 2023.
However, when the CBN announced the FX unification policy, the external reserves dropped to $34.66 billion.
From July to December 2023, the reserves fluctuated within the $33 billion range.
Analysts suggest that the recent growth in reserves may be unsustainable since the accretion is largely associated with foreign debt accumulation, which is expected to minimise the impact on the exchange rate, projected to remain around N1,400 to N1,500.
Meanwhile, traders attribute the naira’s weakness to increased demand for dollars by individuals ahead of the summer holiday and importers needing dollars to import raw materials.
The CBN has said it plans to double the diaspora remittance inflow this year through a steady flow of foreign exchange into the country.
However, Abiodun Keripe, Managing Director of Afrinvest Research and Consulting, cautioned that it is too early to conclude that the renewed pressure on the naira is due to the coming summer holiday, as it is just one-day depreciation.
He noted that an expected $2.5 billion inflow could bolster external reserves and strengthen the naira.
Keripe stated that Nigeria is operating a willing-buyer, willing-seller market and the exchange rate is determined by the level of liquidity in the market.
Analysts believe the scarcity of ‘hard currencies,’ particularly dollars, in the nation’s foreign exchange market is a major concern for multinationals operating in the country and has been one of the reasons some international firms have left Nigeria in recent times.
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