The Nigerian naira weakened to N1,541.36 per dollar on the first trading day of the year, according to data from the Central Bank of Nigeria (CBN). This marked a 0.36% depreciation from the closing rate of N1,535.82 per dollar at the end of 2024.
Fluctuations in Official and Parallel Markets
While the NFEM official rate showed a slight decline, the naira experienced mixed movements across different trading platforms. Some authorized dealers quoted the dollar at N1,545, an improvement from the N1,550 recorded earlier in the week. Others quoted the naira at N1,520 per dollar by the close of trading on Thursday.
In the parallel market, the naira traded at N1,655 per dollar, a slight improvement compared to N1,670 on Tuesday. Despite these minor gains, the currency has suffered significant depreciation over the past year.
“The naira recorded a 40.9% depreciation in 2024 compared to its official rate of N907.11 per dollar at the end of 2023,” a currency analyst explained, highlighting the sharp decline over the previous year.
CBN Policies and Market Reforms
The depreciation comes in the wake of several foreign exchange reforms introduced by the CBN to stabilize the market and attract foreign investors. One of the most notable reforms was the launch of the Electronic Foreign Exchange Matching System in December 2024. The system set new guidelines for authorized foreign exchange dealers and temporarily brought some stability to the market.
Despite these efforts, currency analysts suggest that challenges remain. “While the CBN’s reforms have improved transparency, the naira is still facing significant pressures due to high demand for dollars and insufficient supply,” an expert in the financial sector observed.
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Movements in the Money and Bond Markets
The liquidity situation in the banking system also reflected in the money market, where the Nigerian Interbank Offered Rate (NIBOR) declined across all maturities. The Open Repo Rate dropped by 0.61% to 26.69%, and the Overnight Lending Rate fell by 0.55% to 27.25%. These changes indicate improved liquidity conditions among banks.
In the bond market, trading in Federal Government of Nigeria (FGN) bonds remained sluggish. This led to a slight increase in the average yield, which rose to 19.76%. Meanwhile, Nigeria’s sovereign Eurobonds market saw a 6 basis point decline in average yield to 9.62% due to increased buy pressure across short, mid, and long-term maturities.
Outlook for the Naira
The naira’s continued depreciation raises concerns about the nation’s economic stability. Experts warn that if dollar scarcity persists, it could further strain the currency. “The CBN must focus on sustainable policies that address structural issues affecting the forex market, especially boosting export earnings and managing import dependence,” a financial analyst suggested.
As the year unfolds, stakeholders will watch how the government and CBN tackle these challenges to stabilize the naira and enhance confidence in Nigeria’s foreign exchange market.