**Nigerian Naira Exchange Rate 2024: Unexpected Fluctuations in the Parallel Market**
Since the beginning of 2024, the Nigerian Naira exchange rate has been under unprecedented pressure in the parallel market, with a significant depreciation recorded in the last week. Negotiations by parallel market participants yesterday resulted in an exchange rate of N1,705 to $1, down from N1,655 seen just a week ago, marking a sustained downward trend.
This steady decline in the exchange rate is the first in several weeks, unlike the daily fluctuations in a narrow range of N1,645 to N1,655 to $1 recorded over the past two months. Parallel market participants have reported to Vanguard that there have been supply gaps over the past two weeks, which are believed to have contributed to the depreciation observed in the market.
This situation could also affect the official market segment, as evidenced by data provided by FMDQ indicating that the indicative exchange rate for the Nigeria Autonomous Foreign Exchange Market (NAFEM) fell from N1,540.78 per $1 last weekend to N1,541.94 per $1 yesterday, representing a depreciation of 96 kobo.
The exchange rate trend during the third quarter of 2024 also indicates a reversal of the positive trend recorded at the end of last year. While the Naira had closed the previous year on the parallel market at N1,215 per $1, after averaging N1,800 per $1 in the third quarter of 2023, it had started 2024 higher, with an exchange rate of N1,220 per $1.
However, this trend reversed in the second quarter of the year, with a steady depreciation taking the quarterly average to N1,620 per $1 by the end of the second quarter of 2024. After two months of stability around N1,630 per $1 during the third quarter, a fresh wave of depreciation appears to have now begun, raising fears of a repeat of the depreciation spike recorded in the fourth quarter of 2023.
Economic stakeholders are projecting an increase in prices due to the continued depreciation of the naira against the dollar, especially in the parallel market. Dr. Uju Ogubunka, President, Bank Customers Association of Nigeria (BCAN), noted that the depreciation of the naira can be attributed to sustained demand against limited supply, resulting in foreign exchange supply shortfalls.
This will have implications for the cost of imported goods into the country and the prices at which these goods will be sold upon arrival in the market. Consumers will therefore have to expect widespread price increases in the coming months..
Furthermore, the volume of dollars traded on NAFEM saw a 61% year-on-year increase in the first nine months of 2024, from $20.9 billion to $33.7 billion. These figures are indicative of the changing dynamics of the foreign exchange market in Nigeria and highlight the importance of closely monitoring the exchange rate developments in the months ahead.