The Nigerian naira faced a significant setback, depreciating by 2.71% against the dollar to close at N885.88/$1 on December 22nd, 2023. This decline, coupled with a 22% drop in forex turnover to $92.16 million, is causing growing concerns about its potential impact on Christmas spending.
Data from the official forex trading platform, NAFEM, revealed the naira's loss of N23.97 compared to its Thursday close of N861.91. Analysts attribute this weakness to a combination of factors, including heightened demand for foreign currency ahead of the Christmas holidays and ongoing concerns about Nigeria's oil production, along with global economic uncertainties.
The forex market recorded an intraday high of N1248/$1 and an intraday low of N700/$1, reflecting a wide spread of N548/$1. At the close of trading, forex turnover stood at $92.16 million, indicating a 22% decrease compared to the previous day.
Parallel to the official market, the naira also depreciated in the unofficial forex market, with an exchange rate of N1230/$1 and peer-to-peer traders quoting around N1163.35/$1.
The depreciation of the naira holds potential implications for Christmas spending, as it makes imported goods more expensive. Despite this, the Central Bank of Nigeria has reassured the public of its commitment to maintaining exchange rate stability and has pledged to take necessary measures to address the situation.
Financial experts weigh in on the situation, emphasizing the importance of market and participant confidence for exchange rate stability. Mr. Olatunde Amolegbe, the former President and Chairman of the Chartered Institute of Stockbrokers, highlights the need for structural changes to encourage import substitution, including improved security, better infrastructure, increased foreign direct investments, and enhanced local production.
Bismarck Rewane, Managing Director/CEO of Financial Derivatives Company Limited, predicts continued volatility in the naira due to lingering forex supply concerns. The scarcity of dollars may lead to speculative buying, with market participants increasingly opting for long positions on the dollar while shorting the naira. As the nation navigates these economic challenges, the focus remains on restoring confidence and implementing measures for long-term stability
Source: Nairametrics
