The naira appreciated against the US dollar on the official Nigerian Autonomous Foreign Exchange Market on Thursday, closing at ₦1,395 per dollar, up from ₦1,408 on Wednesday. However, the gain occurred in a market characterised by minimal turnover, with total daily foreign exchange transactions falling to zero on the FMDQ platform, according to market data. The absence of quoted trades suggests extremely thin liquidity, raising questions about the sustainability of the naira’s recent stability.
Market participants noted that while the official rate has shown improvement over the past month, the volume of transactions has declined sharply. The zero-turnover reading on May 1 marks the third such occurrence in April and May, indicating a lack of willing sellers at current price levels. Several analysts point to the continued scarcity of dollar supply in the interbank market, as the Central Bank of Nigeria has reduced its direct intervention in recent weeks after building reserves through higher crude oil prices.
The parallel market, where many businesses and individuals source hard currency for invisible transactions, quoted rates between ₦1,430 and ₦1,450 per dollar, representing a premium of 2.5 to 4 per cent over the official rate. The gap has narrowed significantly from peaks of over 60 per cent recorded in 2024, a testament to the central bank’s efforts to unify the exchange rate and improve transparency. However, the narrow spread in a thin market suggests that the improvement may be fragile, with any demand shock potentially widening the gap again.
The central bank has signalled a shift toward a market-determined exchange rate, intervening only to smooth volatility rather than defend a specific level. This approach has reduced distortions and helped attract some portfolio inflows following Nigeria’s reclassification to Frontier Market status. However, the lack of depth in the market remains a constraint, as foreign portfolio investors remain cautious about committing significant capital until there is evidence of sustained dollar liquidity. The naira’s stability will ultimately depend on Nigeria’s ability to increase its supply of foreign exchange through non-oil exports, diaspora remittances, and foreign direct investment.
