This week, Nigeria’s foreign exchange (FX) reserves reached a 13-month high, with gross reserves increasing by USD 465.21 million week-on-week (w/w) to USD 34.66 billion as of July 4. Despite this positive development, the naira continued its downward trend, depreciating by 0.3% w/w to NGN 1,509.67/USD at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
The total turnover at NAFEM decreased significantly by 43.0% week-to-date (WTD) to USD 678.58 million as of July 4. Trades were conducted within the NGN 1,430.00/USD – NGN 1,550.00/USD range. The activities in the FX market this week continue to reflect the frail state of FX liquidity. Despite the recent increase in FX reserves, weak inflows from the Central Bank of Nigeria (CBN) and low confidence in the FX market have sustained the naira’s weakness.
The limited supply of FX from the CBN is a key factor contributing to the ongoing liquidity challenges. Investors and market participants remain cautious, further exacerbating the pressure on the naira.
Looking ahead, financial Experts in the sector anticipate that FX liquidity to remain frail in the short term, given the lack of significant supply from the CBN. This situation is likely to continue heaping pressure on the naira, with potential implications for inflation and economic stability.
However, while Nigeria’s FX reserves have reached a 13-month high, the naira continues to depreciate due to frail FX liquidity and weak market confidence. The outlook for the naira remains challenging in the short term, with ongoing pressure expected amid limited FX supply from the CBN.
