The Nigeria Autonomous Foreign Exchange Market (NAFEM) witnessed a notable downturn in dollar sales on Friday, with transactions plummeting by $252 million to $84.1 million.
This staggering 74 percent decrease from Thursday’s figure of $336.11 million signals mounting challenges within the foreign exchange market.
Concurrently, the naira experienced a depreciation against the dollar, slipping to N1,537/$ in the official market from N1,498/$ the previous day, as per data from the FMDQ Security Exchange.
The decline in forex turnover underscores broader hurdles facing the market, despite contributions from various entities including commercial banks, the Central Bank of Nigeria (CBN), oil firms, and multinationals.
In tandem with the official market, the parallel market also observed a weakening of the naira to N1,670/$ from N1,600/$. This trend was propelled by robust demand for the US dollar among speculators and individuals with diverse needs spanning business, tourism, education, and healthcare.
An analysis of the week’s forex supply dynamics reveals fluctuations, characterized by a significant increase on Tuesday followed by a sharp decline, highlighting the volatility prevalent in the forex market.
Market experts attribute the naira’s depreciation to the heightened demand for dollars, with indications suggesting that this trend may persist in the near term.
Responding to the challenges in the forex market, the CBN has instituted several policy measures aimed at stabilizing the currency and ensuring adequate forex supply.
These measures include mandating Deposit Money Banks to offload their excess dollar reserves and implementing prudential guidelines to deter hoarding and speculative activities.
Recent guidelines from the CBN have introduced further tightening controls, focusing on Personal Travel Allowance, repatriation of revenues by International Oil Companies, and measures to counter under-invoicing of exports and over-invoicing of imports.
Despite these interventions, the disparity between the official and parallel market rates continues to widen, sparking concerns over potential round-tripping activities.
Banks and International Money Transfer Operators (IMTOs) have commenced implementation of these new guidelines, issuing notices to customers and adjusting their operations accordingly.
However, the efficacy of these interventions remains uncertain as the forex market grapples with significant pressure, underscoring the complex challenges inherent in managing Nigeria’s foreign exchange reserves and sustaining currency stability.