Naira Depreciates to N1,485/$ in Official Forex Market, Records $23 Billion Trading Volume The Nigerian naira traded at 1,485 to the US dollar on Wednesday, August 17, 2023, depreciating by 0.6% from the previous day’s closing rate of N1,478/$ at the official Investors and Exporters (I&E) window. Despite the depreciation, the foreign exchange (forex) market recorded a significant trading volume, with $23 billion worth of transactions executed through the I&E window. This represents a substantial increase from the previous day’s volume of $19 billion. The demand for foreign exchange has remained high as businesses and individuals seek to meet their offshore obligations and hedge against currency risks. The increased trading volume suggests that the Central Bank of Nigeria (CBN) has been able to meet the demand and stabilize the exchange rate. However, analysts caution that the naira could face further depreciation pressures in the coming months due to several factors, including: * Declining oil revenue, which is a major source of foreign currency * Rising global inflation, which is putting pressure on the CBN to raise interest rates * Increased demand for dollars ahead of the 2023 general elections The CBN has implemented various measures to support the naira, including raising interest rates and limiting access to foreign exchange for certain imports. The effectiveness of these measures remains to be seen. Meanwhile, the parallel market or black market rate depreciated to N675/$ on Wednesday, from N670/$ previously. The gap between the official and parallel market rates indicates a continuing lack of confidence in the official forex market.Forex Turnover Surges in Nigeria after CBN ReformsForex Turnover Surges in Nigeria after CBN Reforms A recent study by The Punch has revealed a significant increase in foreign exchange turnover in Nigeria’s official market. In the first six months of 2024, the turnover reached $23.29 billion, a 15% increase or $600 million compared to the same period in 2023. This surge is attributed to a series of reforms implemented by the Central Bank of Nigeria (CBN), including the unification of exchange rate windows, liberalization of the foreign exchange market, and the settlement of overdue obligations. The increased liquidity in the market is evident in the monthly turnover data. In January, $4 billion worth of foreign exchange was traded, rising to $5.14 billion in February. However, it fell in March and April before rebounding in May to $4.6 billion. Key reforms include: * Unification of exchange rate windows * Liberalization of the foreign exchange market * Settlement of overdue foreign exchange obligations * Implementation of a price verification system * Imposition of limits on banks’ net open position * Review of the Exchange Offices segment The high turnover rates indicate an active market with numerous participants, which suggests investor confidence and economic stability. The CBN’s efforts to address speculation and hoarding by banks, as well as its commitment to settling foreign exchange arrears, have contributed to the market’s liquidity. The stability of the naira in recent months, trading between 1,476 and 1,485 naira against the dollar, is also attributed to low demand and increased dollar inflows. Nigeria’s external reserves have also increased to $33.64 billion as of June 20, 2024. Despite these positive developments, sustainability remains a concern. The CBN has emphasized the need to attract flows to maintain liquidity in the foreign exchange market and stabilize the exchange rate. At the end of the trading week, the naira closed at N1,485.53 per dollar, unchanged from the previous day’s close. The daily turnover of the foreign exchange market was $193.50 million. Overall, the reforms implemented by the CBN have had a positive impact on the Nigerian foreign exchange market, boosting turnover and enhancing liquidity. However, sustainability remains a key concern, and continued efforts are needed to maintain market stability.The official foreign exchange market recorded transactions worth $23 billion in the first half of the year, with the naira depreciating to 1,485 against the US dollar. This represents a significant increase in forex trading compared to the previous year. The exchange rate of the naira has been under pressure due to several factors, including the ongoing global economic crisis and the uncertainties surrounding the Nigerian economy. The Central Bank of Nigeria (CBN) has been intervening in the forex market to support the naira and maintain stability. Despite the CBN’s efforts, the naira has continued to depreciate against the dollar. This has raised concerns among businesses and individuals who rely on foreign exchange for their transactions. The depreciation of the naira is expected to have a negative impact on the Nigerian economy. It will increase the cost of imported goods and services, which will lead to inflation. It will also make it more difficult for businesses to access foreign exchange, which could lead to reduced investment and economic growth. The CBN has stated that it is committed to maintaining stability in the forex market. It is expected to continue to intervene and adopt measures to support the naira. However, the long-term stability of the naira will depend on the overall health of the Nigerian economy.