November 2024: A Period of Naira Depreciation and Increased FX Market Activity
The month of November 2024 witnessed a notable depreciation of the Nigerian naira against the US dollar, continuing a trend observed in recent months. The average exchange rate for the month settled at $/N1,667.41, marking a 2.14% decline from the $/N1,631.71 recorded in October 2024. The naira traded within a range of $/N1,639.50 to $/N1,690.37 during November, reflecting the currency’s volatility in the foreign exchange market. This depreciation, while concerning, was accompanied by a significant surge in trading activity on the FMDQ Exchange, Nigeria’s primary financial market infrastructure. This increased activity suggests a complex interplay of factors influencing the naira’s value and the dynamics of the foreign exchange market.
The FMDQ Exchange reported a substantial increase in spot FX market turnover, reaching $14.39 billion (N23.95 trillion) in November. This represents a remarkable 42.69% increase compared to the $10.08 billion recorded in October 2024. This surge in spot market activity, despite the naira’s depreciation, indicates robust demand for foreign exchange. While the spot market flourished, the derivatives market experienced a contrasting downturn. Turnover in the FX derivatives segment plummeted by 82.41% month-on-month, falling to $0.49 billion (N0.81 trillion) from $2.27 billion in October. This stark contrast between the spot and derivatives markets underscores the distinct dynamics at play within the broader foreign exchange landscape.
Despite the contrasting performance of the spot and derivatives markets, the combined turnover across both segments on the FMDQ Exchange reached an impressive N59.03 trillion in November 2024. This figure represents a substantial 43.18% increase from the previous month and a staggering 111.8% surge compared to the same period in the previous year. This overall growth in trading activity signifies the increasing importance and dynamism of the Nigerian foreign exchange market. Market observers are closely monitoring the evolving situation, recognizing the interplay of various regulatory and economic factors that contribute to these market fluctuations. The anticipation is for continued volatility in the coming months, with the naira’s trajectory remaining a subject of intense scrutiny.
The current volatility in the naira’s value can be traced back to the Nigerian government’s decision in June 2023 to allow the currency to float freely against the US dollar. This policy shift, while intended to address the overvaluation of the naira and attract foreign investment, has had significant repercussions. The devaluation has contributed to a rise in inflation, impacting the purchasing power of Nigerian citizens, and has also led to an increase in the nation’s external debt burden. This debt, which stood at $43.16 billion (N33.25 trillion at the then-prevailing exchange rate of N770.38/$) as of June 1, 2023, has ballooned due to the naira’s subsequent depreciation.
The depreciation of the naira against the US dollar has been substantial since the implementation of the floating exchange rate regime. By June 1, 2024, the exchange rate had risen to N1,470.19/$, representing a significant 47.6% depreciation compared to the pre-float rate. This dramatic decline in the naira’s value has further exacerbated the challenges posed by rising inflation and the growing external debt. The interplay of these economic factors paints a complex picture of the Nigerian economy, with the naira’s future trajectory remaining uncertain.
The ongoing fluctuations in the naira’s value underscore the complexities and challenges facing the Nigerian economy. The government’s decision to float the currency, while aimed at achieving long-term stability and attracting foreign investment, has led to short-term pain in the form of increased inflation and a heavier debt burden. The interplay of these factors, coupled with the dynamics of the foreign exchange market, will continue to shape the naira’s trajectory in the coming months. Market observers and policymakers alike are closely monitoring the situation, seeking to navigate these challenges and chart a course towards sustainable economic growth.
