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The naira, Nigeria‘s currency, recorded gains at the official foreign exchange (FX) market, closing the month of September with N43.83 gains. However, it reported losses on the parallel market.

Surge in External Reserves

According to data from the Central Bank of Nigeria (CBN), the country’s external reserves have seen a sharp increase in 2024. As of September 27, 2024, reserves had surged by 15.26 percent year-to-date, amounting to a $5.04 billion rise over the period. This pushed Nigeria’s total foreign currency reserves to $38.06 billion, up from $33.02 billion recorded at the beginning of the year. The growth in reserves is a positive indicator for the CBN’s ability to defend the naira in the FX market, providing much-needed liquidity to sustain the currency’s stability.

Naira Gains in Official Market

The naira made considerable progress at the Nigerian Autonomous Foreign Exchange Market (NAFEM), where it closed the month of September at N1,541.94 to the dollar. This is a marked improvement compared to the N1,585.77 quoted on September 2, 2024, the first trading day of the month. The overall N43.83 gain highlights a period of steady recovery for the naira in the official market.

Much of this appreciation is linked to the increased supply of dollars in the market. According to data from the FMDQ Securities Exchange Limited, the FX market turnover saw a massive rise of 155.49 percent in dollar supply. On September 30, 2024, dollar turnover reached $181.86 million, compared to just $71.18 million at the beginning of the month. This surge in supply, largely due to increased activity from CBN, has contributed to the naira’s positive performance in the official market.

 Central Bank Support and BDC Operations

The CBN played a pivotal role in stabilising the FX market by providing dollars to Bureau De Change (BDC) operators. Throughout the month of September, the CBN sold $20,000 twice to BDC operators to help meet the rising demand for foreign currency. On September 6, 2024, the CBN sold dollars to the BDCs at a rate of N1,580 per dollar, and on September 25, 2024, at a rate of N1,590. This intervention was aimed at reducing the pressure in the FX market and ensuring adequate dollar liquidity for smaller traders.

Parallel Market Under Pressure

Despite the naira’s gains in the official market, the currency faced continued pressure in the parallel market, where it depreciated by 2.79 percent over the course of the month. The naira ended September at an average rate of N1,683 per dollar, down from N1,635 at the beginning of the month.

This N47 loss reflects the challenges the parallel market faces, as demand for dollars remains high while supply is limited. The gap between the official and parallel market rates has widened, raising concerns about the sustainability of the naira’s performance in the long term.

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The parallel market has long been a critical avenue for individuals and businesses unable to access foreign currency through official channels. As a result, when the CBN’s interventions are not sufficient to meet market demand, the black market often becomes a pressure valve, driving up rates.

While the naira’s performance in the official FX market during September 2024 is a positive development for Nigeria’s broader economy, the challenges in the parallel market highlight the ongoing demand and supply imbalances. The increase in foreign reserves, bolstered by a robust rise in dollar supply, has provided some relief, allowing the naira to appreciate officially. However, the continued depreciation in the parallel market underscores the complexity of Nigeria’s foreign exchange dynamics, as the CBN must balance the need for dollar liquidity with market stability, a Lagos based financial market analyst said.

The analyst said, “As Nigeria continues to manage its FX reserves and dollar supply, the future trajectory of the naira will likely depend on the government’s ability to attract foreign investment, boost exports, and manage its monetary policies effectively to curb further depreciation pressures in unofficial channels.”