Nigeria’s currency, the Naira, experienced a notable surge against the dollar in the official market on Friday, January 5th, 2024, marking its second gain of the year. According to data from the Nigerian Autonomous Foreign Exchange Market (NAFEM), the domestic currency appreciated by a significant 3%, closing at N869.13 per dollar at the day’s end. This indicated an impressive N26.1 gain compared to the previous day’s closing rate of N895.23, signifying a 3% increase in the local currency’s value.
However, this positive momentum wasn’t mirrored in the parallel forex market where the naira struggled. Unofficially traded, the exchange rate quoted at N1255/$1, depicting a 1.99% decline from the previous day’s rate. Additionally, peer-to-peer traders set their quotes at around N1231.70/$1, indicating persistent challenges in this segment of the market.
Financial experts weighed in on the situation, emphasizing the crucial role of market confidence in stabilizing the exchange rate.
Olatunde Amolegbe, former President and Chairman of the Chartered Institute of Stockbrokers, highlighted the significance of confidence in attracting foreign investments and retaining local investments. He underscored the need for structural changes, including improved security, infrastructure, increased foreign direct investments, and support for local production, as crucial steps toward encouraging import substitution and stabilizing the currency.
Managing Director/CEO of Financial Derivatives Company Limited, Bismarck Rewane, expressed concerns about lingering forex supply issues, predicting continued volatility for the naira.
The scarcity of dollars has led to speculative buying, with market participants increasingly favoring long positions on the dollar while shorting the naira.
The current scenario underscores the complexity of Nigeria’s forex market, where gains in the official market stand in contrast to the challenges faced in the parallel market. Achieving stability demands not only short-term interventions like clearing FX commitments and reducing currency speculation but also long-term structural changes that bolster confidence and encourage sustainable economic practices. Addressing systemic issues and fostering an environment conducive to investment and local production remains imperative for Nigeria’s currency to find stable ground amidst fluctuating market dynamics.