Nigerian Naira Depreciates Sharply in Parallel Market and NAFEM

The Nigerian naira has experienced a significant depreciation in both the parallel market and the Nigerian Autonomous Foreign Exchange Market (NAFEM) on April 19, 2024. The naira fell to N1,140 per US dollar in the parallel market and N1,169.99 per dollar in NAFEM, with the traded volume in NAFEM dropping by a substantial 53.2% to $86.86 million.

The naira's decline in the parallel market represents a sharp drop from the previous day's rate of N1,060 per dollar. Similarly, in NAFEM, the naira depreciated by N15.01 against the dollar. The market recorded an intraday high of N1,236 per dollar and an intraday low of N1,021 per dollar, resulting in a margin of N215.

The official exchange rate set by the Central Bank of Nigeria (CBN) stands at ₦1,592.67 per US dollar as of April 20, 2024. The difference between the black market rate and the official rate, known as the parallel market premium, reflects the level of confidence in the naira and the CBN's policies.

Why this matters: The sharp depreciation of the naira and the significant drop in traded volume in NAFEM emphasize the ongoing challenges faced by the Nigerian currency and foreign exchange market. The developments highlight the significance of effective monetary policies and market stability measures to support the naira and boost investor confidence.

The naira had earlier seen a 12% increase in value in April, and Goldman Sachs had projected that it could strengthen below N1,000 per dollar if the CBN maintained favorable monetary policies. The CBN has implemented various measures to promote market transparency, control participant behavior, and stabilize the foreign exchange market. These include paying up 'legitimate' foreign exchange arrears and releasing guidelines for International Money Transfer Organizations (IMTOs).

However, the US dollar maintained its momentum amid remarks by the New York Fed President and strong economic data from the US, leading to a decline in existing home sales in the country. The margin between the parallel market and NAFEM rates narrowed to N29.99 per dollar from N94.08 per dollar on the previous day, indicating a slight convergence of rates.

As the Nigerian economy continues to navigate the challenges posed by currency fluctuations and market dynamics, the CBN's policy decisions and the overall economic landscape will play a critical role in determining the future trajectory of the naira and the stability of the foreign exchange market.

Key Takeaways

• Naira depreciated to N1,140/USD in parallel market, N1,169.99/USD in NAFEM on April 19, 2024.
• NAFEM trading volume dropped 53.2% to $86.86 million, reflecting ongoing FX market challenges.
• Official exchange rate stood at N1,592.67/USD, widening the parallel market premium.
• Naira had earlier gained 12% in April, but US dollar strength led to recent depreciation.
• Narrowing gap between parallel and NAFEM rates indicates slight convergence of FX rates.