Naira depreciates to N1,425/$ in parallel market

The naira depreciated to N1,425 per dollar in the parallel foreign exchange market on Friday, marking a slight increase from the N1,422 per dollar recorded the previous day. The local currency also weakened marginally at the Nigerian Foreign Exchange Market (NFEM), trading at N1,381.5 per dollar, according to data released by the Central Bank of Nigeria (CBN). This reflects a 50 kobo decline from the N1,381 per dollar rate observed at the official market earlier in the week. As a result, the disparity between the parallel and official exchange rates expanded to N43.5 per dollar, up from N41 per dollar the prior day. Turnover at the NFEM saw a notable rise, increasing by 40 percent to $287.8 million on Thursday, compared to $205.4 million recorded on Wednesday. This uptick suggests heightened activity in the formal market despite the ongoing depreciation of the naira. The shift in exchange rates has sparked concern among traders and economists, who point to several contributing factors behind the current trend. Foreign exchange dealers have noted that the scarcity of dollars is driving up prices in the parallel market. Mr Audu Yisa, a seasoned trader, explained that he purchased a dollar for N1,405 and sold it for N1,424 on Friday. He described how the rate fluctuated throughout the day, with a dollar being sold between N1,415 and N1,419 in the early hours. According to Yisa, the limited availability of dollars has led to increased demand, particularly from importers and individuals seeking to pay school fees abroad. These groups often turn to the parallel market when banks fail to meet their forex requirements. He emphasized that speculation is exacerbating the situation, creating a self-reinforcing cycle of rising prices. Mr Nurudeen Danjuma, another trader, attributed the depreciation to broader economic challenges. He highlighted the declining oil revenues and reduced foreign investment as key contributors to the dwindling supply of dollars within the country. With fewer foreign currencies entering Nigeria, the demand for dollars continues to grow, especially as more Nigerians seek to preserve their wealth in hard currency. Danjuma pointed out that this behavior fuels further upward pressure on the parallel market rate. He noted that the naira has remained volatile, hovering between N1,300 and N1,400 per dollar in the parallel market over the past few weeks. Both traders acknowledged the role of speculative activities in amplifying the fluctuations. They stressed that while the official market remains relatively stable, the parallel market is increasingly influenced by external pressures and internal economic dynamics. The CBN's efforts to manage the exchange rate have faced mounting difficulties, as the central bank struggles to balance the need for liquidity with the goal of maintaining currency stability. As the situation unfolds, analysts suggest that the continued depreciation of the naira could lead to further inflationary pressures and impact consumer confidence. The government faces the challenge of addressing the root causes of the imbalance, including improving fiscal discipline and attracting sustainable foreign investment. Until these issues are resolved, the naira is likely to remain under sustained pressure in both the official and parallel markets.