Why the naira depreciated in the official market despite rise in turnover

• The Nigerian currency depreciated by 6.43 per cent in July as CBN intervened in the market
• The Central Bank of Nigeria embarked on a series of FX sales in the month to prop up the naira’s value
• However, the foreign exchange turnover in the official market increased by 30 per cent in the month under review

Legit.ng’s Pascal Oparada has reported on tech, energy, stocks, investment, and the economy for over a decade.

The Nigerian naira lost about 6.43% of its value in July, trading at the lowest rate of N1,608.73 per dollar.

Data from the FMDQ Exchange shows that the local currency performed at a four-month low of N1,500.32 under the review period and a high of N1,612.12, exceeding the N1,600 threshold.

The Nigerian foreign exchange market depreciates in July Credit: NurPhoto/Contributor
Source: Getty Images

Naira depreciates despite the increase in turnover

The naira’s depreciation came despite efforts by the Central Bank of Nigeria (CBN) to prop up its and improve liquidity in the market via FX sales.

According to reports, the apex bank conducted about three rounds of FX sales to authorized dealers in July.

Analysts believe that the Forex sales by CBN boosted the FX turnover in the official market.

FX  turnover in the official increased by 30% to $4.34 billion from $3.33 billion recorded the month before.

CBN embarks on massive FX sales

The apex bank also sold about $377.17 million to authorized dealers in the foreign exchange market

The bank asked all authorized dealers to ensure that FX purchases are exclusively utilized for trade-backed transactions, which must be reported in 72 hours.

CBN attributed the exchange market movements to demand pressure and an uptick during summer.

It also began regular exchange sales via authorized dealer banks and licensed BDCs to stabilize and ensure liquidity.

CBN to reintroduce the Dutch Auction System

Legit.ng previously reported that the CBN has reportedly asked authorized dealer banks to submit the list of legitimate FX demands in response to growing unmet needs by end-users.

The report said the means aims to mitigate the adverse effect of demand on the naira and the foreign exchange market.

It was noted that the CBN will conduct a Retail Dutch Auction System (rDAS) on Wednesday, August 7, 2024, to provide FX for eligible transactions, mitigating the demand pressure.

Banks, traders crash dollar rates in official, black markets

Legit.ng earlier reported that the Nigerian currency, the naira, recorded an impressive performance against the US dollar for the first time in two weeks.

The naira appreciated against the dollar in the Nigerian foreign exchange market on Thursday, August 1, 2024, to trade at N1,570 per dollar, representing a 2.47% increase from the previous day’s gain of N1,698.73 per dollar.

The current performance of the naira is the first time since July 24, 2024, when the Central Bank of Nigeria sold Forex to 29 authorized dealers.

Source: Legit.ng