The naira continued its downward trajectory in November, depreciating by 2.14% to an average exchange rate of $/N1,667.41, according to the FMDQ Markets Monthly Report released on Tuesday. This marks a decline from October’s $/N1,631.71 and reflects ongoing challenges in Nigeria’s foreign exchange market.
The report noted that the naira traded within a range of $/N1,639.50 to $/N1,690.37 during the month. The depreciation comes amid heightened demand in the Spot FX Market, where turnover rose significantly by 42.69% to $14.39 billion (N23.95tn), up from $10.08 billion in October.
Despite the naira’s depreciation, the increased activity in the spot market indicates growing demand for dollars in Nigeria. However, the derivatives market witnessed a sharp decline, with turnover plummeting by 82.41% to $0.49 billion (N0.81tn), compared to $2.27 billion recorded in October.
Overall, total turnover across both the Spot and Derivatives Markets on the FMDQ Exchange in November reached N59.03tn, representing a 43.18% month-on-month increase and a staggering 111.8% rise compared to November 2023.
Persistent FX Market Volatility
The naira’s continued depreciation comes in the wake of significant changes in Nigeria’s foreign exchange policies. In June 2023, the government implemented a major currency devaluation, allowing the naira to float freely against the dollar. While the move aimed to attract foreign investment and correct an overvalued exchange rate, it has led to heightened inflation and increased external debt burdens.
According to the Debt Management Office, Nigeria’s external debt as of June 1, 2023, stood at $43.16 billion. At an exchange rate of $/N770.38, this amounted to N33.25tn. However, as the naira depreciated by 47.6% to $/N1,470.19 by June 2024, the country’s external debt obligations surged to N63.07tn.
Outlook for the Naira
Market observers expect further volatility in the foreign exchange market as regulatory measures and macroeconomic factors continue to impact the naira’s performance. The rising demand in the spot market highlights the sustained pressure on Nigeria’s currency, while the decline in derivatives trading points to reduced hedging activity amid uncertainty.
The FMDQ report underscores the need for concerted efforts to stabilize the naira and manage external debt effectively, as Nigeria navigates the challenges of a floating exchange rate system and fluctuating market dynamics.
