Recent developments suggest that the Naira is experiencing another phase of depreciation, driven by heightened demand pressures amid an expanding supply gap.

As of yesterday, the Naira fell to N1,635 per dollar in the parallel market, a decrease from N1,625 per dollar recorded last weekend.

In contrast, data from the FMDQ Exchange indicated that the indicative exchange rate for the Nigerian Autonomous Foreign Exchange Market (NAFEM) decreased to N1,585.77 per dollar, down from N1,598.56 per dollar over the same period.

This shift has resulted in an increased disparity between the parallel market and NAFEM rates, which widened to N49.23 per dollar from N26.44 per dollar last weekend.

Dealers attribute the renewed pressure on the exchange rate in the parallel market to a reduction in dollar supply at the official market level, as reflected by NAFEM.

Analysis reveals that the volume of dollars traded in the market plummeted by 58.8 percent yesterday, totaling $71.18 million compared to $172.8 million the previous Friday.

On a month-on-month basis, the trading volume decreased by 25 percent, falling to $3.25 billion in August from $4.34 billion in July 2024.

Operators in the parallel market noted that the exchange rate surged yesterday due to rising demand, yet they did not observe a corresponding increase in supply.

Compounding the supply gap, findings indicate that Nigeria's foreign reserves have diminished by $490 million during the review period.

Data from the Central Bank of Nigeria (CBN) indicates that foreign exchange reserves decreased by 1.3 percent month-on-month, reaching $36.3 billion as of August 28, down from $36.79 billion on July 31, 2024.

Financial analysts have linked this reduction to the CBN's interventions in the foreign exchange market aimed at stabilizing the Naira.

In their August market report, analysts from Afrinvest West Africa Limited, a Lagos-based investment firm, projected that the Naira is likely to depreciate against the dollar, primarily due to an increase in demand for Personal Travel Allowances (PTAs) and Business Travel Allowances (BTAs).

They noted, “Without significant inflows to enhance FX supply, we anticipate that the Naira will face pressure this month, influenced by seasonal demand peaks for PTAs and BTAs.”