Nigeria’s exchange rate depreciates by 40% in first half of 2024, despite forex reforms 

Story Highlights 

• Nigeria’s exchange rate closed June 2024 at N1,503.3/$1, marking a 1.3% depreciation for the month. 

• Despite breaching the N1,500/$1 mark, the exchange rate showed relative stability within a 2% band, fluctuating between N1,470 and N1,503. 

• This trend highlights the first month of stable exchange rates since the Central Bank of Nigeria implemented significant foreign exchange reforms, though Nigerians continue to experience prolonged exchange rate volatility with a 40% depreciation since December 2023. 

 Nigeria’s exchange rate closed June 2024 at N1,503.3/$1, marking a 1.3% depreciation for the month. 

Despite breaching the psychological ceiling of N1,500/$1, the exchange rate demonstrated relative stability. 

According to Nairametrics’ research, it fluctuated between N1,470 and N1,503 against the dollar in June, within a 2% band. 

This trend signals the first month of stable exchange rates since the Central Bank of Nigeria (CBN) implemented a series of reforms in the foreign exchange sector. 

However, Nigerians continue to face prolonged periods of exchange rate volatility, as the naira crashed by 40% between the end of December 2023 and June-ending. 

The exchange rate closed in 2023 at N907.11 and immediately experienced several volatilities along the way, closing the first half of the year at N1,503/$1. 

What the data is saying 

The first half of 2024 has seen significant fluctuations in Nigeria’s exchange rate, reflecting the country’s economic challenges and the impact of policy measures. 

January started with high volatility, as the exchange rate spiked from N907.11/$1 on December 29, 2023, to over N1,000/$1 in early January, before dipping mid-month and then surging again to close at N1,348.62/$1, indicating severe depreciation. 

In February 2024, the exchange rate continued to rise sharply, reaching a peak of N1,665.50/$1 on February 23, the highest in the first half of the year. This period marked continued depreciation before some  

stabilization towards the end of the month. 

March 2024 brought a gradual decline in the exchange rate, falling from N1,548.25/$1 at the beginning of the month to N1,309.39/$1 by March 28, showing some recovery and stability towards the end. 

April experienced initial stability with the exchange rate fluctuating between N1,136 and N1,339, but it began to rise again by the end of the month, closing at N1,419.11/$1. 

May 2024 continued this trend of fluctuations, with the exchange rate moving between N1,354 and N1,533 levels, ending the month at N1,485.99/$1, indicating ongoing volatility. 

June 2024, however, brought relative stability. The exchange rate hovered between N1,473 and N1,510, closing the month at N1,505.30/$1, representing a 1.3% depreciation for the month. 

This relative stability in June, despite earlier volatility, suggests that the CBN’s reforms and policy measures might be starting to have a stabilizing effect on the foreign exchange market. 

Key CBN policies in H1 2024 

It has been slightly over a year since the Central Bank announced the unification of all segments of the forex exchange (FX) market. 

Since then, the apex bank has introduced a series of foreign exchange reforms to enhance the supply of foreign exchange while also reducing restrictions on demand. 

In the past six months, the CBN has released over 15 circulars and implemented policy actions aimed at further liberalizing the market.   

To conserve foreign exchange and protect the Naira’s value, the CBN revised operations for International Money Transfer Operators (IMTOs), restricting their services to inbound transfers with mandatory Naira payouts. This move impacts major IMTOs, including Western Union and MoneyGram, and is among several measures aimed at stabilizing the foreign exchange market. 

It also introduced stringent measures on the purchase of foreign currencies through Bureau De Change (BDC) operators, with a specific focus on transactions related to overseas education and medical expenses. Aside from that, the apex bank sold forex to BDCs at least four times within the first half of 2024, as well as cleared valid FX backlog. 

The apex bank also released a circular addressing suspected cases of excessive foreign currency speculation and hoarding from Nigerian banks. It, therefore, mandated DMBs to sell their excess dollar stock latest February 1, 2024, as part of moves to stabilize the nation’s volatile exchange rate.  

Another circular from the bank announced major changes, such as ending the limit on the spread between buy and sell rates in interbank foreign exchange transactions and removing restrictions on the sale of proceeds from interbank transactions.   

The apex bank also targeted international oil and gas companies, amending guidelines on cash pooling of their forex inflows, stopping them from remitting 100% of their inflows. The CBN, however, allowed International Oil Companies (IOCs) to sell 50% balance of their repatriated export proceeds to authorized forex dealers.   

The 40% depreciation indicates that the market might be skeptical about the effectiveness of the CBN’s forex policies. 

What you should know 

Nairametrics earlier reported that the Nigerian Autonomous Foreign Exchange Market (NAFEM) window, is set to record its lowest foreign exchange (FX) turnover in five months in June 2024, as dollar illiquidity continues to exert pressure on the naira.   

The downturn in the Nigerian FX market persists despite a slew of policies and reforms implemented by the CBN aimed at stabilizing the market and achieving price discovery for the naira. 

The continuous depreciation of the naira and the reduced FX turnover highlight the significant liquidity challenges facing the Nigerian economy.   

Notably, the CBN raised the Monetary Policy Rate (MPR) by a cumulative 750 basis points between January and May 2024, with the twin aim of tackling the rising inflation rate and attracting foreign portfolio investors. 

This was following an initial call between the CBN Governor, Yemi Cardoso and foreign portfolio investors in February. 

Hence, the fixed income and money market space has since witnessed high yields across TBills, OMO, and Bond auctions. Nonetheless, FX liquidity continues to remain a major bane in the Nigerian foreign exchange market, driven by massive demand and low supply, thereby leading to a steady decline in the value of the local currency.   

On the positive side, Nigeria’s foreign reserves surged to its highest level in over three months, reaching $34.07 billion as of June 26, 2024, compared to $32.69 billion at the beginning of the month. 

This increase may be partly attributed to the reduced intervention by the CBN in the FX market, as well as improved export earnings due to increased crude oil output.