Naira Slumps Across FX Markets Amid Economic Challenges
The Nigerian naira continued its downward spiral across both official and unofficial foreign exchange (FX) markets on Tuesday, reflecting deep-rooted economic concerns, including dwindling dollar inflows, rising inflation, and the burden of increased tariffs.
According to data from the Central Bank of Nigeria (CBN), the naira depreciated by 0.3 percent, falling from N1,528.03 per dollar on Monday to N1,532.94 at the Nigerian Foreign Exchange Market (NFEM). Traders quoted the highest exchange rate at N1,549.50, showing a slight strengthening from N1,552 the previous day. However, the lowest rate recorded at the NFEM stood at N1,522.70, a further decline from Monday’s N1,512 closing rate.
Declining Dollar Inflows Worsen FX Crunch
One of the primary factors contributing to the naira’s depreciation is a significant decline in foreign exchange inflows. According to Coronation Asset Management, the official FX market recorded only $1.0 billion in inflows last week, marking a 25.4 percent drop from the $1.34 billion received in the preceding week. The shortage of dollar supply continues to place pressure on the naira, making it increasingly expensive to acquire foreign currency.
In the parallel market, commonly known as the black market, the naira further weakened to N1,580 per dollar, losing N5 compared to its previous close of N1,575 on Monday. This trend highlights the widening gap between the official and unofficial exchange rates, driven by rising demand for dollars amid economic instability.
Tariff Hikes and Inflation Aggravate Currency Woes
Beyond the foreign exchange shortfalls, the Nigerian economy is grappling with the consequences of higher tariffs and inflation. Over the past few months, the government has implemented tariff increases on essential goods, electricity, and telecommunications, exacerbating the financial strain on businesses and households. The impact of these rising costs is further reflected in the weakening purchasing power of the naira, making imports more expensive and fueling inflation.
As of Tuesday, the naira saw mixed movements against other major currencies. While it appreciated by N10 against the British pound, trading at N2,040 from N2,050 on Monday, it remained stable at N1,700 per euro and N1,150 per Canadian dollar. The Chinese yuan traded at N1,215 in the black market, reflecting persistent currency volatility.
Oil Sector Struggles and Pipeline Explosion Add to Economic Uncertainty
Further compounding Nigeria’s economic woes, a major explosion struck the Trans-Niger Pipeline, one of the country’s largest oil arteries. This disruption has raised concerns over potential environmental damage and economic losses, with analysts warning that it could place additional pressure on the country’s dollar earnings from crude oil exports.
Nigeria’s oil sector is already facing serious headwinds, with reports indicating that as of March 10, buyers were still being sought for 12 March-loading crude cargoes. Much of April’s export schedule also remains unsold, highlighting weak global demand for Nigerian crude.
Adding to the market’s volatility, global oil prices have suffered setbacks due to trade tensions between the U.S. and key partners, as well as an OPEC+ production quota increase. According to Afrinvest Securities Limited, Brent crude fell by 2.4 percent week-on-week to $70.82 per barrel from its previous price of $72.49, further limiting Nigeria’s oil revenue and foreign exchange reserves.
Outlook: Economic Stability Hinges on Policy Reforms
With rising tariffs, inflationary pressures, and declining dollar inflows, the outlook for the naira remains bleak unless significant policy interventions are introduced. Analysts stress the need for structural reforms to boost non-oil exports, attract foreign investment, and stabilize the FX market. Without these measures, the naira may continue its downward trajectory, eroding economic confidence and increasing the cost of living for Nigerians.
As the country navigates these economic headwinds, all eyes remain on policymakers and the CBN’s next move to curb the currency’s depreciation and restore investor confidence.
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Naira Slumps Across FX Markets Amid Economic Challenges