Naira Falls Amid Increased Forex Turnover To N15.74tn, Says FMDQ Report

Forex Turnover Soars as Naira Weakens

The value of foreign exchange turnover in Nigeria surged to N15.74 trillion in August 2024, marking a 33.88% increase from July’s N13.23 trillion.

This rise reflects intensified trading and investor activity, according to an FMDQ report. However, despite the positive news on forex turnover, the naira weakened, selling at N1,658 against the dollar in the official market, and as high as N1,670 in the black market.

Increased Forex Activity Fails to Strengthen the Naira

According to the Central Bank of Nigeria (CBN), the increase in turnover was driven by heightened transactions in T-bills, OMO Bills, and FGN Bonds.

“The turnover in August highlights the growing confidence and participation in the Nigerian Autonomous Foreign Exchange Market (NAFEM),” an official at FMDQ said. Despite this, the naira continues its downward trend. On Tuesday, the currency depreciated by N1 from N1,659 the previous day.

“The value of the naira has been under pressure for months due to various economic factors, and these increases in forex turnover haven’t been enough to halt its decline,” said a market analyst.

Naira’s Depreciation Worsens in the Black Market

At the black market, the naira was traded at N1,670, significantly higher than the official market rate. A Lagos-based forex trader stated, “The black market continues to reflect higher rates due to the high demand for dollars and limited supply.”

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CBN Governor Olayemi Cardoso addressed the persistent depreciation of the naira. “The value of the naira will not improve unless the fundamental issues driving our forex expenses are tackled,” he said during a press briefing after the latest Monetary Policy Committee (MPC) meeting.

CBN Pushes for Economic Diversification to Support the Naira

Governor Cardoso emphasized the need for economic diversification as a long-term solution for stabilizing the naira. He said, “We cannot expect to have a strong naira while remaining dependent on oil exports. We need to ramp up production in non-oil sectors and pursue import substitution.”

Cardoso added that, although the CBN is working on strengthening forex inflows through remittances, these efforts alone cannot fix the naira’s value. “We have made progress with remittances, which increased to $585 million in August, but that won’t replace the need to address the core economic issues,” he stated.

Volatile Exchange Rates Complicate Economic Forecasts

In August, the naira traded within a range of N1,543.84 to N1,617.08, further showcasing the volatility in the market. This is compared to the previous month’s range of N1,500.32 to N1,621.12. The spot exchange rate rose by 1.68%, closing at an average of N1,586.56 by the end of August.

“The volatility in exchange rates is a clear sign of the challenges facing the naira. Until we stabilize the economy and fix the underlying factors, this will continue,” explained a financial expert.

CBN Auction Supports Naira Temporarily

The CBN’s auction of $876.26 million to 26 commercial banks in August provided brief relief, with the naira appreciating to N1,596.52 against the dollar. This move aimed to ease pressure on forex demand in the market and promote price stability.

However, experts warn that these temporary measures are not enough. “We have to focus on boosting local production and reducing our reliance on imports. That’s the only sustainable way to strengthen the naira,” said a policy analyst.

External Reserves on the Rise

Despite the naira’s struggles, Nigeria’s external reserves saw an increase, reaching $39.07 billion in mid-September 2024. Governor Cardoso explained that this increase was due to deliberate efforts by the CBN to improve forex inflows.

“We have enough reserves to cover eight months of imports, which is a positive sign,” he said. However, he reiterated the importance of fixing the fundamentals driving forex demand.

Outlook on Naira and Forex Market

As Nigeria continues to grapple with depreciating naira, the focus remains on addressing long-term economic issues. The CBN has made strides in boosting forex turnover, but more needs to be done to stabilize the currency.

Governor Cardoso concluded, “The naira’s value depends on economic reforms, including increasing non-oil exports and reducing import dependence. We must be realistic about the challenges and work toward fixing them.”

The CBN has also warned that it will penalize individuals and businesses found to be manipulating the forex market.