The naira depreciated to an average exchange rate of $/N1,667.41 in November 2024, representing a 2.14% decline from October’s rate of $/N1,631.71. This trend reflects the continuing volatility in Nigeria’s foreign exchange market and raises concerns about the currency’s long-term stability.
According to the FMDQ Markets Monthly Report released on Tuesday, the naira traded within a range of $/N1,639.50 to $/N1,690.37 during the month. The depreciation comes amid heightened activity in the foreign exchange (FX) market, despite challenges posed by the fluctuating value of the local currency.
Increased Activity in the Spot FX Market
The report revealed a notable increase in the Spot FX Market turnover, which reached $14.39 billion (N23.95 trillion) in November 2024. This marked a significant 42.69% rise from October’s turnover of $10.08 billion. The increased activity highlights strong demand for foreign exchange, despite the naira’s declining value against the US dollar.
However, the growth in the spot market was contrasted by a sharp downturn in the derivatives segment. Turnover in the FX derivatives market fell by 82.41% month-on-month, dropping to $0.49 billion (N0.81 trillion) in November, compared to $2.27 billion in October 2024. This divergence between the spot and derivatives markets underscores shifting dynamics in Nigeria’s financial landscape.
Overall Market Performance
The combined turnover of the Spot and Derivatives Markets on the FMDQ Exchange amounted to N59.03 trillion in November 2024. This represented a 43.18% increase from the previous month and an impressive 111.8% growth compared to November 2023. These figures indicate robust market activity, even as the naira continues to face depreciation pressures.
Background on Naira Volatility
The recent fluctuations in the naira’s value can be traced back to a significant policy shift in June 2023, when the Nigerian government allowed the currency to float freely against the US dollar. This move aimed to address the naira’s overvaluation and attract foreign investment. However, it has also contributed to heightened inflation and a sharp rise in external debt.
Data from the Debt Management Office revealed that Nigeria’s external debt stood at $43.16 billion as of June 2023. At the time, the exchange rate was N770.38 to the dollar, amounting to N33.25 trillion in naira terms. By June 2024, the naira had depreciated by 47.6%, with the exchange rate rising to N1,470.19 to the dollar. This depreciation has significantly increased the naira-denominated value of external debt, which now stands at an estimated N63.07 trillion.
Economic and Regulatory Implications
The naira’s depreciation reflects underlying economic challenges, including high inflation, external debt pressures, and ongoing FX market volatility. Market observers continue to monitor the situation closely, noting the impact of regulatory policies and global economic factors on the naira’s performance.
Despite efforts to stabilize the currency, including increased FX market turnover and policy interventions, the naira remains vulnerable to fluctuations. This trend highlights the need for sustained structural reforms to address fundamental weaknesses in Nigeria’s economic framework.
Outlook for the FX Market
As the naira continues to experience volatility, analysts predict further fluctuations in the coming months. Factors such as global economic conditions, oil price dynamics, and domestic fiscal policies will play a critical role in shaping the trajectory of the naira’s value.
In the face of these challenges, stakeholders in the financial market emphasize the importance of strategic policy measures to enhance currency stability and restore investor confidence. The ongoing adjustments in the FX market, while necessary, underscore the complexity of balancing economic reform with the realities of Nigeria’s financial system.
