Naira Slides to N1,505/$ in Parallel Market

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The Naira experienced a significant depreciation yesterday, falling to N1,505 per dollar in the parallel market, down from N1,495 per dollar recorded last weekend. In the Nigerian Autonomous Foreign Exchange Market (NAFEM), the Naira also weakened, depreciating to N1,490.2 per dollar from N1,485.53 per dollar over the same period.


Data from FMDQ revealed that the indicative exchange rate for NAFEM increased to N1,490.2 per dollar, representing a N4.67 depreciation for the Naira compared to last weekend. Additionally, the volume of dollars traded in the market saw a substantial decline, with turnover dropping by 21.4 percent to $152 million from the $193.5 million traded last Friday.


This depreciation has widened the margin between the parallel market and NAFEM rates to N14.8 per dollar, up from N9.47 per dollar last weekend.


Factors Influencing the Depreciation

The Naira's recent depreciation in both the parallel market and NAFEM can be attributed to several key factors:


1. Declining Dollar Supply: The significant drop in the volume of dollars traded suggests a reduced supply of foreign currency in the market, exerting pressure on the Naira.

2. Economic Uncertainty: Ongoing economic challenges, including inflation and fluctuating oil prices, continue to impact the stability of Nigeria's currency.

3. Market Speculation: Speculative activities in the parallel market often exacerbate currency depreciation as traders anticipate further information. 


The widening margin between the parallel market and NAFEM rates reflects increasing volatility and uncertainty in Nigeria's foreign exchange markets. This situation poses several challenges:


- Increased Import Costs: A weaker Naira makes imports more expensive, contributing to higher inflation rates and increased cost of living.

- Business Uncertainty: Businesses reliant on foreign exchange for importing goods and services face difficulties in planning and budgeting due to fluctuating exchange rates.

- Investor Confidence: Persistent currency depreciation can erode investor confidence, potentially affecting foreign investment inflows.


To address these challenges, it is crucial for policymakers to implement measures aimed at stabilizing the foreign exchange market. These may include enhancing foreign currency reserves, improving economic policies, and fostering a conducive environment for foreign investments.


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