Money talks: Biggest Slippage in Official Market as the Nigerian naira experienced its sharpest depreciation in the official market on Tuesday, 30 January 2024, closing at N1348 per dollar. This records a significant 2.2% drop from the previous day’s close of N1318/$, marking the currency’s worst performance in the official window since July 2021. This sudden depreciation has sent shockwaves through the Nigerian economy, raising concerns about potential inflationary pressures and foreign exchange (FX) scarcity.
As the festive season ends and businesses restock, demand for imported goods rises, putting pressure on FX reserves. This coincides with a period of declining oil prices, a major source of FX earnings for Nigeria. Also Global economic uncertainties and rising interest rates in major economies like the US are making emerging markets like Nigeria less attractive for investment. This reduces FX inflows and weakens the naira.
The Central Bank of Nigeria’s (CBN) recent policy adjustments, including the introduction of a special FX window for SMEs, have inadvertently increased demand for dollars in the official market, contributing to the depreciation and free fall of the Naira against other foreign currencies
The volume of dollars traded on NAFEM plummeted 28.5 percent to $404.5 million, down from $565.82 million the previous week. The naira’s depreciation has immediate consequences for various sectors. Imported goods will become more expensive, potentially leading to inflation and a decline in purchasing power.
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Access to FX for essential imports and raw materials will be more difficult, affecting production costs and potentially impacting their bottom line.