The Nigerian forex (foreign exchange) market is not doing well right now. The amount of money traded every day is very low, almost the lowest since January 2024.
At the same time, the value of the naira (Nigeria’s money) is going down. Now, one US dollar costs nearly 1600 naira. This is happening in the official market.
This problem shows that enough forex (dollar) supply is really important to keep the naira stable.
Less Trading in Forex
Recent information shows that the average daily forex trading fell to $143.97 million in August 2024. This is the lowest since January 2024 when it was $97.36 million.
Forex trading had some ups and downs before, reaching $252.55 million in March. But it has been going down since then.
Here is how the monthly forex trading looked:
January 2024: $97.36 million
February 2024: $222.85 million
March 2024: $252.55 million
April 2024: $194.16 million
May 2024: $209.39 million
June 2024: $195.95 million
July 2024: $184.34 million
August 2024: $143.97 million
This steady drop, especially the 21% decrease in the first two weeks of August 2024, shows that dollars are getting harder to find. The Central Bank of Nigeria (CBN) made it worse by not supplying dollars consistently.
Effects on Exchange Rates
With less forex trading, the naira’s value dropped in the official market.
In early July 2024, one dollar was about 1508 naira. By late August 2024, it was almost 1600 naira.
- This happened even though the money sent home by Nigerians living abroad went up by 130% to $553 million. But more money coming in could not stop the naira from getting weaker because of less forex trading.
- The shortage of forex affects Nigeria’s economy. Nigerian businesses are worried about this trend.
- A survey by CBN showed many businesses think the naira will lose more value soon because of the ongoing forex issues.
- The drop in forex trading means fewer dollars are available, making the naira weaker against the dollar.
Even more money sent by Nigerians abroad has not been enough to fix the problem of low forex trading. This shows that remittances help, but they can’t stabilize the naira without regular dollar supply from the CBN.
Irregular Dollar Supply and Market Feelings
People in the market, like Bureau De Change (BDC) operators, are worried that the CBN is not supplying dollars regularly. This makes it hard to stabilize the naira.
How the CBN handles dollar auctions and forex reserves is a big part of the current market situation.
- Not having a steady and regular supply of dollars has made people lose confidence in the market. This leads to guesses and makes the naira weaker.
- The big drop in daily forex trading to its lowest since January 2024 has hurt the naira, which is now close to 1600 naira per dollar.
- This trend shows how important forex liquidity is to keep the exchange rate stable.
- As the CBN struggles with dollar supply, the market might see the naira lose more value, especially if forex trading keeps dropping.
- The future of the naira is uncertain. Businesses and market operators are ready for the naira to lose more value in the coming months.