Naira Falls To N1,391 Per Dollar In Parallel Market As Pressure Mounts On Local Currency

The Nigerian naira experienced fresh depreciation on Wednesday, falling to N1,391 per dollar in the parallel market from N1,350 recorded the previous trading day. The local currency also weakened at the official Nigerian Foreign Exchange Market, NFEM, where it depreciated to N1,359.5 per dollar.

Data released by the Central Bank of Nigeria, CBN, revealed that the indicative exchange rate for the naira moved upward, reflecting increased pressure on the domestic currency. The widening gap between the official and parallel market rates continues to pose challenges for monetary authorities attempting to maintain exchange rate stability.

Currency traders attributed the depreciation to persistent demand for foreign exchange that continues to outstrip available supply. Businesses requiring dollars for imported goods and services, alongside individuals seeking foreign currency for education, medical treatment, and travel expenses, have created sustained pressure on the naira.

The parallel market, often referred to as the black market, remains a significant channel for foreign exchange transactions despite ongoing reforms aimed at unifying Nigeria's multiple exchange rate windows. Many businesses and individuals continue to rely on this informal market when official channels prove unable to meet their foreign currency needs.

Analysts expressed concern that the renewed depreciation could reverse some of the gains recorded in recent months following the CBN's foreign exchange reforms. The central bank has implemented various measures to boost dollar supply, including clearing foreign exchange backlogs and introducing electronic trading platforms to improve market transparency.

The naira's performance has significant implications for Nigeria's inflation outlook. A weaker currency typically translates to higher import costs, which could feed through to consumer prices in a country heavily dependent on imported goods ranging from fuel to food items and manufactured products.

Manufacturers have repeatedly called for urgent government intervention to stabilise the exchange rate, arguing that currency volatility undermines their ability to plan and invest. Many factories rely on imported raw materials and machinery, making them particularly vulnerable to naira depreciation.

The agricultural sector, which has been touted as a key driver of economic diversification, also faces challenges from a weak currency. While exporters benefit from naira depreciation, farmers requiring imported inputs such as fertiliser and pesticides face rising costs that could impact food production.

Remittances from Nigerians in the diaspora represent a crucial source of foreign exchange inflows. However, the persistent gap between official and parallel market rates has encouraged informal channels for sending money home, depriving the official financial system of valuable foreign currency.

International investors monitoring Nigeria's economic reforms will view the renewed currency pressure as a test of the authorities' commitment to maintaining a stable exchange rate environment. The country's ability to attract foreign direct investment and portfolio flows depends significantly on investors' confidence in macroeconomic stability.

Petroleum sector dynamics continue to influence Nigeria's foreign exchange position. Despite being Africa's largest oil producer, the country struggles to maximise dollar earnings due to production challenges, crude oil theft, and the cost of petrol subsidies that consume a significant portion of foreign exchange reserves.

The federal government's ongoing negotiations with international financial institutions could provide additional foreign exchange buffers if successful. However, any external borrowing would need to be accompanied by structural reforms to ensure sustainable improvement in the country's external position.

For ordinary Nigerians, the weakening naira translates to rising costs of living at a time when household budgets are already stretched by inflation and economic uncertainty. The currency's trajectory in coming weeks will have significant implications for purchasing power and living standards across the country.