Nigeria: Currency Dealers and Analysts Explain 23% Depreciation of Naira in 4 Days

The Naira experienced a sharp decline last week, falling by 23% against the dollar, marking its worst weekly performance since February. This was attributed to a surge in demand for dollars in the parallel market driven by banks and end-users, coupled with slow forex disbursement to BDCs by the Central Bank of Nigeria (CBN).

Despite the challenging situation, the CBN intervened in the official Nigeria Foreign Exchange Market (NAFEM) on Friday, leading to the appreciation of the Naira in the parallel market. However, currency dealers and analysts remained uncertain about the Naira’s future, emphasizing the importance of the pace and speed of CBN intervention.

The depreciation trend continued as the Naira depreciated by 25% to N1,405 per dollar on Thursday, following four consecutive days of decline. Factors contributing to this included sharp practices in the parallel market and slow dollar disbursement to BDCs by the CBN.

President of the Association of Bureaux De Change Operators of Nigeria, Dr. Aminu Gwadabe, highlighted the impact of speculative trading and the resurgence of Person-to-Person transactions on the Naira’s depreciation. He also emphasized the need for continued CBN intervention and renewed FPI flows to stabilize the currency.

In response to the situation, the CBN increased the speed of dollar disbursement to BDCs and stepped up enforcement activities to curb illegal trading practices. This led to the appreciation of the Naira in the parallel market, providing some relief to currency dealers and end-users.