Despite the Central Bank of Nigeria’s (CBN) first-ever Retail Dutch Auction, the official foreign exchange (FX) market in Nigeria saw a significant drop in turnover in August.
Data gathered from the FMDQ by Chronilysts, The News Chronicles’ research arm, show a dramatic loss of $1.08 billion, with total turnover down to $3.25 billion from $4.34 billion in July 2024.
This 25% decrease underscores the continued difficulties with stability and liquidity that the official FX market faces.
What the figures indicate
From $189.42 million in July to $144.71 million in August, the average daily foreign exchange turnover fell by 23.61%. This decrease points to a sharp downturn in market activity and growing challenges in obtaining foreign exchange.
Compared to the lowest turnover in July ($108.16 million), the lowest turnover in August ($61.9 million) was 42.74% lower. This steep drop suggests that August’s market was more restrained and that liquidity issues were more severe.
While July had its maximum turnover on July 11 at $348.82 million, August’s record occurred on August 9 at $323.11 million, which was little less.
The steady fall in foreign exchange transactions from July to August, along with notable daily variations, highlights the increasing pressure on the official market. The lower turnover raises the possibility of tighter dollar liquidity, which would further exacerbate the Naira’s decline.
The Central Bank of Nigeria (CBN) may find it more difficult to preserve the value of the naira as a result of the market’s difficulties, which could, if they continue, cause additional devaluation.
Naira fell 1.79% compared to the US dollar
On the official NAFEM market, the value of the naira fell by 1.76% versus the US dollar over the reviewed period.
On August 30, 2024, the local currency changed hands on the official market from N1,570/$1 at the beginning of the month to N1,598.56/$1.
In contrast to the 6.43% depreciation that was recorded in the preceding month, this depreciation is slight.
The data indicates a market under pressure despite the little fall, with the naira continuously weakening versus the dollar, potentially due to supply-demand mismatches in the foreign exchange market.
On August 21, the value of the naira reached its highest peak at N1543.84/$1, while on August 2, it fell to its lowest position at N1,617.08/$1.
August’s naira average was about N1,586 – roughly 1.6% higher than July’s average of N1,561 – which could mean that July’s currency was more stable than August’s.
Increased volatility was observed in August 2024, with a persistent downward pressure on the value of the naira. Reduced foreign exchange turnover and increased market uncertainty contributed to this drop.
What to note
In its most recent Retail Dutch Auction, the Central Bank of Nigeria (CBN) auctioned $876.26 million to 26 approved banks for N1,495/$1 during the first week of August.
A bid of $1.18 billion was received from 32 dealer banks, according to a CBN statement. Nevertheless, two banks failed to include bids in their submitted templates, while four banks missed the deadline, disqualifying their bids.
As previously reported by the News Chronicles, on August 6, 2024, the forex turnover on the FMDQ, the official exchange rate trading platform, concluded at a turnover of just $61.9 million, the lowest since January 2024.
The $59.6 million recorded on January 8, 2024, was the lowest this year, and this was the second-lowest daily average turnover of the year.
Market participants, like Bureau De Change (BDC) operators, have expressed apprehension regarding the CBN’s irregular dollar supply, contending that it is impeding endeavours to steady the naira.
The market is still susceptible to additional devaluation while the CBN struggles to control the supply of dollars, particularly if FX turnover keeps declining.
The naira’s future is still unclear, and market participants and companies are both preparing for the possibility of additional depreciation in the months to come.
