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The report from Friday highlighted that this downturn is prompting the Central Bank of Nigeria to consider further hikes in interest rates.
The Nigerian naira has reversed its recent upward trend, becoming the least valuable currency globally in the past month, as reported by Bloomberg.
The report from Friday highlighted that this downturn is prompting the Central Bank of Nigeria to consider further hikes in interest rates.
The naira has fallen to 1,466.31 against the dollar, its lowest point since March 20.
The drop is linked to a shortage of US dollars locally, with the availability plummeting to $84 million on Thursday, which is only half of what was accessible the previous day.
Previously, CBN governor Yemi Cardoso praised the naira as the top-performing currency worldwide as of April 2024.
In March, the naira struggled, dropping to a low of N1,600/$1 in the official market and N1,800/$1 in the parallel market.
Cardoso credited this success to a range of reforms in the foreign exchange market and the positive outlook from major international investment bodies.
In a discussion with Bloomberg, Razia Khan, Chief Economist for Africa and the Middle East at Standard Chartered, projected that $1.3 billion worth of naira futures are set to mature by the end of the month, which could weaken market confidence.
She explained, “This is expected to increase the demand for dollars.
“When the currency saw rapid appreciation, offshore investors took profits, causing the dollar-naira exchange rate to rise once more.
“This aligns with how a functioning market operates,” she noted.
The report also indicates that the naira's diminishing value is likely to put more pressure on the CBN to raise rates again following its policy meeting on May 21.
The Central Bank previously upped rates by 600 basis points in February and March, which helped the naira recover from its March 8 low of 1,627 to 1,072 by mid-April, attracting investors to the higher-yielding local assets.
The naira's weakness was also noticeable in the unofficial market, where it fell by 0.9% to 1,468 naira per dollar on Friday due to rising demand from individuals and small businesses, according to Abubakar Muhammed, CEO of Forward Marketing Bureau de Change Ltd. in Lagos.
Additionally, the Zambian kwacha and Ghana’s cedi are among the four currencies that performed the worst over the last month.
The kwacha reached an all-time low of 27.3969 per dollar on Friday, while the cedi fell to 13.99 against the dollar, its weakest since 2022. Both nations are in the midst of debt restructuring.
Ayodele Salami, chief investment officer at UK-based Emerging Markets Investment Management Ltd., suggested to Bloomberg that the delay in reaching debt restructuring agreements with private creditors is affecting capital flows for Ghana and Zambia.
He stated, “Until the debt restructuring talks are finalized, it's unlikely that either country will see new capital inflows.”
Salami also mentioned that the naira, along with other African currencies, is under strain due to the domestic need for dollars, especially for importing essential raw materials and commodities, such as oil.
