ENUGU, Nigeria (VOICE OF NAIJA)- The Naira demonstrated resilience against the US dollar at the official foreign exchange (FX) market, marking a 4.90 per cent gain as it closed at N844.85 compared to the previous day’s rate of N888.35, according to data from the Nigerian Autonomous Foreign Exchange Market (NAFEM).
Despite an 18.90 percent drop in dollar liquidity on Tuesday, the spot rate for the willing buyers and sellers stood at N1,189.12, stronger than the N1,249 spot rate on Monday. The lower bid rate on the spot trading remained at N720 per dollar.
However, the daily foreign exchange market turnover, reflecting the volume of dollar transactions at the official market, experienced an 18.90 percent decline to $111.76 million on Tuesday from $137.82 million recorded on Monday.
Typically, a low FX supply tends to result in a depreciation of the Nigerian Naira against the dollar, as the scarcity of dollars increases their relative value. This can lead to more expensive imports, contributing to upward pressure on inflation.
A weakened Naira may also deter foreign investors, potentially reducing foreign direct investment crucial for economic growth. Local businesses may face challenges accessing foreign exchange for importing essential raw materials, impacting production and economic activity.
The combination of costly imports and reduced economic activity can contribute to increased inflation, eroding household purchasing power and potentially leading to heightened poverty and social unrest.
Furthermore, a low dollar supply may exert pressure on the Nigerian financial sector, potentially causing liquidity problems and instability as financial institutions struggle to meet their dollar obligations.
This, in turn, can have broader implications for lending and borrowing activities in the economy.