Nigeria’s naira has reversed recent gains and is now the world’s worst performing currency in the last month.
Naira’s Performance: Nigeria’s naira has dropped from being the best performing currency to the worst performing currency in the last month, according to a Bloomberg report. This shift places increased pressure on the Central Bank of Nigeria (CBN) to continue raising interest rates.
Depreciation: The naira has depreciated to 1,470.31 against the US dollar, marking its weakest level since March 20. This decline is attributed to the local scarcity of US currency, with only $84 million available on Thursday, half of the previous day’s supply.
Impact of Local Dollar Demand: The naira is being weighed down by increasing local dollar demand. The local scarcity of US currency has led to a decline in the naira’s value, making it the world’s worstperforming currency in the last month.
CBN Governor’s Previous Statement: CBN governor, Yemi Cardoso, had previously hailed the naira as the bestperforming currency globally as of April 2024. However, the naira faced challenges in March, plummeting to as low as N1,600/$1 on the official market and N1800/$1 on the parallel market.
Foreign Exchange Market Reforms: Cardoso attributed the naira’s achievement to a series of foreign exchange market reforms and positive sentiment from leading international investment institutions.
Naira Futures: Razia Khan, the Chief Economist for Africa and the Middle East at Standard Chartered, estimates that $1.3 billion in naira futures will mature at the end of this month, potentially dampening market sentiment.
Increased Demand for Dollars: Khan believes that this will create more demand for dollars, leading to further pressure on the naira.
ProfitTaking by Offshore Investors: When the currency appreciated very fast, there had been a bout of profittaking by offshore investors, and this meant that the dollarnaira exchange rate backed up again.
Functioning Market: Khan stated that this is completely in line with the functioning market, indicating that market forces are being allowed to work.
Pressure on CBN: The decline in the naira’s performance is expected to intensify pressure on the CBN to implement another rate hike after its upcoming policy meeting on May 21.
Rate Hikes: In February and March, the Central Bank increased rates by a total of 600 basis points. This move aided the naira in rebounding from its low of 1,627 naira on March 8 to 1,072 in mid April, as investors sought out higher yielding local assets.
Unofficial Market: The weakness of the naira was also seen in the unofficial market, where it depreciated by 0.9% to 1,468 naira against the dollar on Friday, due to increased demand from individuals and small businesses.
