After a turbulent week, Nigeria’s currency hit a record low on Thursday as dollar liquidity in the country’s foreign exchange market dropped by half.
According to Bloomberg data, the naira fell 5.8% to settle at 1,649.76 per dollar on the official market, marking the biggest daily decrease since May 30.
With a 3.3% monthly loss, the Euro is the worst-performing global currency.
The naira gained 4.8% on Wednesday after the government successfully raised $900 million in its first domestic dollar bond; however, the loss reversed the gain. A shortage of US currency was cited by analysts as the reason for the 48% decline in domestic dollar liquidity to $114 million.
“There is still naira pressure given the foreign-exchange flow imbalances,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank. While the central bank resumed selling dollars to local bureau de change traders this week, “larger and more targeted supply may be needed to stabilize the naira in the absence of portfolio inflows,” he said.
Since President Bola Tinubu removed regulations last year that kept the currency artificially overvalued in the hopes of attracting foreign investment, the value of the naira has dropped by almost 70% compared to the dollar. However, these have been sluggish to arrive, and it has had trouble getting going.
Seasonal considerations also come into play; rich Nigerians who travel during this time of year or must pay for their children’s education abroad have a strong demand for money.
According to economist Omobola Adu of BancTrust & Co. Investment Bank, lower central bank-issued treasury bill yields have also played a role.
On September 11, the Central Bank of Nigeria auctioned 364-day Treasury Bills for 148.5 billion naira ($90 million), at a yield of 18.59%, the lowest since January.
Some are hesitant since July’s slower-than-expected inflation has stoked expectations that the central bank will hold off on raising interest rates during its next policy meeting later this month.
Adu predicted that, if Tinubu follows through on his promises of economic transformation, the naira would strengthen to end the year at about 1,500 per dollar with further support from the central bank. “When investors consider the reward-risk trade-off, they are cautious and want to exit,” Adu said.
“Policy credibility needs to be improved by the government,” Adu stated, adding that “they need to reassure investors by doing what they say they’re going to do.”
