Nigeria’s naira has suffered a reversal in its recent gains, emerging as the world’s worst-performing currency over the past month, according to a new Bloomberg report.
Friday’s report emphasized that this development puts increasing pressure on the Central Bank of Nigeria to continue raising interest rates.
The naira depreciated to 1,466.31 against the dollar, marking its weakest level since March 20.
This drop is attributed to the local shortage of US currency, with just 84 million dollars available on Thursday, half of the previous day’s supply.
CBN Governor Yemi Cardoso had previously hailed the naira as the best performing currency globally in April 2024.
The naira faced challenges in March, falling to N1,600/$1 in the official market and N1,800/$1 in the parallel market.
Cardoso attributed this achievement to a series of reforms in the foreign exchange market and the positive sentiment of the main international investment institutions.
Speaking to Bloomberg, Standard Chartered’s chief economist for Africa and the Middle East, Razia Khan, estimates that $1.3 billion worth of naira futures will expire at the end of this month, potentially dampening market sentiment.
“The belief is that this will create more demand for dollars.
“When the currency appreciated very quickly, there was a wave of profit-taking by offshore investors, and this meant that the dollar-naira exchange rate rose again.
“This is completely in line with how the market works,” she said
The report further highlights that the decline in the naira’s performance is expected to intensify pressure on the CBN to implement another rate hike after its next policy meeting on May 21.
In February and March, the Central Bank increased rates by a total of 600 basis points. This movement helped the naira recover from its low of 1,627 naira on March 8 to 1,072 naira in mid-April as investors sought higher-yielding local assets.
The naira’s weakness was also seen in the unofficial market, where it fell 0.9% to 1,468 naira per dollar on Friday due to increased demand from individuals and small businesses, said Abubakar Muhammed, chief executive of Forward Marketing Bureau de Change Ltd., which tracks data in the commercial capital, Lagos.
The weakness of the naira was also evident in the unofficial market, where it depreciated 0.9% to 1,468 naira against the dollar on Friday.
According to the report, the chief executive of Forward Marketing Bureau de Change Ltd., Abubakar Muhammed, who monitors data in Lagos, attributed this decline to increased demand from individuals and small businesses.
Two other African countries are among the four worst-performing currencies over the past month.
The Zambian kwacha hit a record low of 27.3969 to the dollar on Friday. Meanwhile, the Ghana cedi weakened to 13.99 against the dollar on the same day, marking its lowest level since 2022. Both countries are currently undergoing debt restructuring processes.
“For Ghana and Zambia, delays in reaching a debt restructuring agreement with private creditors are likely weighing on capital flows,” the chief investment officer at Emerging Markets Investment Management Ltd., based in the United States, told Bloomberg. United Kingdom, Ayodele Salami.
“Both countries are unlikely to attract new capital flows until ongoing debt restructuring negotiations are concluded,” Salami said.
Salami added that the naira, along with other African currencies, is facing pressure due to increased domestic demand for dollars, particularly to cover the costs of importing raw materials and commodities, including oil.
