Nigeria’s currency, the naira, experienced a dramatic 5.8% drop on Thursday, settling at ₦1,649.76 per dollar in the official foreign exchange market. This marks the naira’s steepest daily fall since May 30, 2024, according to Bloomberg data. The fall comes after a week of volatility for the currency, which has been struggling against tightening dollar liquidity in the Nigerian market.
The decline in dollar availability is a key factor in the naira’s recent depreciation. On Thursday, the domestic foreign exchange market witnessed a nearly 50% reduction in dollar liquidity, plummeting to just $114 million. This has sparked concern among investors and market watchers, given the critical role that dollar supply plays in stabilising Nigeria’s exchange rate.
The naira’s sharp fall comes despite a brief rally the previous day, when the currency gained 4.8% following the Nigerian government’s successful $900 million domestic dollar bond issuance. However, the underlying issue remains clear: there is a significant gap between demand for foreign exchange and supply. Analysts believe that without meaningful intervention, the naira will continue to face downward pressure.
Samir Gadio, head of Africa strategy at Standard Chartered Bank, commented on the imbalance in foreign exchange flow. “While the Central Bank of Nigeria resumed selling dollars to bureau de change operators this week, more targeted and substantial interventions may be required to stabilise the naira, especially in the absence of substantial portfolio inflows,” he said.
When President Bola Tinubu assumed office, one of his first moves was to relax stringent foreign exchange restrictions in hopes of attracting foreign investment. His administration aimed to allow the naira to float more freely, believing that it would entice capital into the country. However, the anticipated influx of investment has been slower than expected, and the currency has continued to lose value—falling by around 70% since the policy change.
One of the challenges the government faces is reassuring both local and foreign investors of Nigeria’s economic stability. While liberalising the exchange rate was a step toward greater market transparency, it also exposed deep-seated issues in Nigeria’s economic fundamentals, including dependence on oil exports and significant foreign debt. Investors are watching closely to see if the government will follow through on its broader economic reform agenda, which includes improving infrastructure and reducing bureaucracy.
Omobola Adu, an economist at BancTrust & Co. Investment Bank, suggests that the naira’s performance has been exacerbated by lower yields on treasury bills. On September 11, the Central Bank of Nigeria sold 148.5 billion naira ($90 million) in 364-day treasury bills at a yield of 18.59%—the lowest since January. Lower yields have diminished the appeal of Nigerian assets, causing some investors to exit their positions.
“Inflation may have slowed in July, raising hopes that the Central Bank will pause interest rate cuts in its upcoming policy meeting. But the lack of foreign exchange inflows and uncertainty around economic reforms have kept investors cautious,” Adu noted. She expects the naira to stabilise around ₦1,500 per dollar by the end of the year if the Central Bank intervenes more aggressively and Tinubu delivers on his reform promises.
Aside from broader economic factors, seasonal demands have also added pressure on the naira. Wealthy Nigerians who need to travel abroad or pay foreign school fees typically require more foreign currency at this time of year. This annual increase in demand for dollars has further strained the already tight supply, contributing to the currency’s volatility.
In addition, the approaching festive season usually drives up demand for imported goods, which could place additional stress on the foreign exchange market in the coming months.
The naira’s future trajectory will depend largely on the government’s ability to implement credible economic reforms and stabilize foreign exchange flows. To restore investor confidence, the government must stick to its reform agenda and provide clear signals that it is committed to fostering a more business-friendly environment.
The Central Bank’s role in managing the currency will also be critical. Investors and businesses alike will be watching for signs of further interventions, whether through dollar sales or more attractive financial instruments that could draw much-needed foreign capital into the country.
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