On Monday, the Nigerian Naira experienced a 0.57 percent depreciation (N5) against the dollar, as demand for dollars surged in the parallel market. In some areas, the exchange rate reached N870 per dollar, compared to N865 on Friday, showcasing the heightened foreign exchange pressure. However, in certain locations in Lagos, the rate stood at N865 per dollar. Traders attributed the Naira's depreciation to increased demand for dollars by travelers.
At the Investors' and Exporters' (I&E) forex window, the Naira witnessed a 1.24 percent weakening, with the dollar quoted at N777.82 on Monday compared to N768.16 on Friday, as per data from the Financial Markets Dealers Quotations (FMDQ). Both willing buyers and sellers maintained high bids, reaching N855.00 on Friday, indicating a weaker stance than the N844.00 bid on Thursday. In contrast, the market auction saw lower bids of N665.00, demonstrating strength compared to the N700.00 bids held on Thursday at the I&E window.
The daily foreign exchange market turnover experienced a notable 33.95 percent increase, reaching $77.99 million on Friday from $58.22 million on Thursday. This surge in forex market activity added to the pressure on the Naira's exchange rate.
Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, acknowledged that the foreign exchange market is facing significant pressure due to multiple factors. He pointed out an unusual monetary expansion in the last month, with money supply growing by an unprecedented 15 percent between May and June 2023. Broad money saw a staggering increase of over N9 trillion, rising from N55.7 trillion to N64.9 trillion. This monetary growth, according to Yusuf, has likely impacted the exchange rate, urging monetary authorities to investigate and take measures to control future expansions. He emphasized that such dramatic growth in money supply poses risks to macroeconomic stability, particularly in terms of price stability.
Yusuf also highlighted the cumulative backlog of unmet foreign exchange demand that has been building up for several years, amounting to billions of dollars due to acute illiquidity in the foreign exchange market. With a more liberalized forex market, the pressure from this backlog of unmet demands and other maturing forex-related obligations has been unleashed on the investors' and exporters' window.
As the foreign exchange pressure persists, policymakers and monetary authorities face the challenge of managing these factors to ensure stability in the forex market and foster economic growth in Nigeria.
