MARKET NEWS

The gap between Nigeria’s official and parallel foreign exchange markets widened further last week, signalling renewed pressure in the informal market despite continued gains in the country’s external reserves.

A look at the CBN’s website revealed that the naira remained broadly stable in the official market, closing the week at N1,380.18/$, unchanged from the previous week. However, the currency weakened in the parallel market to N1,413/$1, representing a depreciation of N13 from N1,400/$ recorded a week earlier.

As a result, the premium between both markets expanded to N32.82, or 2.38 per cent, up from N20.38 (1.48 per cent) the previous week.

A widening parallel market premium is typically viewed as an indicator of excess demand for foreign exchange outside the formal banking system. While the current premium remains significantly below the wide gaps witnessed before the apex bank’s foreign exchange reforms, the recent increase points to growing demand pressures that could weigh on the naira if sustained.

The development comes even as Nigeria’s external reserves continue to strengthen. The country’s gross external reserves rose to $51.743 billion, moving closer to the $52 billion mark. The increase has been supported by improved crude oil export earnings, stronger foreign portfolio investment inflows, and sustained efforts by the CBN to improve liquidity in the foreign exchange market.

Higher reserves generally enhance the CBN’s capacity to intervene in the foreign exchange market when necessary, helping to support exchange rate stability and boost investor confidence. However, analysts at MoneyAfrica note that reserve accumulation alone may not be sufficient to ease pressure in the parallel market if demand for dollars continues to outpace official supply.

According to the apex bank, official remittance inflows have already tripled from approximately $600 million per month since the implementation of its foreign exchange reforms in late 2023.

Going forward, market traders and buyers will closely monitor whether rising reserves and stronger foreign exchange inflows can narrow the widening premium. If dollar demand in the parallel market continues to rise faster than official supply, the pressure on the naira could intensify despite the country’s improving external position.