Nigeria’s naira has continued its downward slide, falling to a new low of N1,677 per dollar at the official close on Wednesday, according to data from FMDQ compiled by Bloomberg.
This represents a decline of 8.2 per cent since the end of last week, as the local currency faces an ongoing scarcity of US dollars and dwindling foreign capital inflows into the country.
Despite a 50 basis point interest rate increase by the Central Bank of Nigeria on Tuesday, raising the benchmark rate to 27.25 per cent, the naira failed to strengthen.
The rate hike was part of the CBN’s efforts to combat inflation, which is hovering near a three-decade high, but the local currency has remained under pressure due to low dollar inflows, Bloomberg reported.
“At one point, we saw significant foreign portfolio investment flows into the market, but that has slowed down considerably.
“If the economy can generate more dollars from both the oil and non-oil sectors, it will increase investor confidence and inflows, helping to stabilise the naira,” said Stanbic IBTC Bank Plc’s Muyiwa Oni.
In addition, Nigeria, Africa’s largest oil producer, has struggled to meet its OPEC oil production targets due to years of underinvestment in the industry. The country earns the bulk of its foreign currency from crude oil exports but also spends billions importing refined petroleum and subsidising domestic fuel prices.
In 2022 alone, fuel subsidies cost the Nigerian government $10bn.
According to Bloomberg, there is some hope on the horizon, as the new Dangote Refinery near Lagos has recently started producing gasoline, which could reduce the need for imported fuel.
However, the local dollar market remains tight, forcing the central bank to intervene regularly by selling dollars to the country’s nearly 6,000 registered Bureau de Change operators, including on Wednesday.
“Volatility has been a persistent issue with the naira, and this looks set to continue unless we see sustained inflows to support liquidity.
“The hike in rates indicates that the central bank expects inflationary pressures to persist, which could further weaken the local currency,” said Ayodeji Dawodu of BancTrust Investment Bank Ltd.