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Nigeria’s naira hits record low against dollar despite Central Bank measures

February 10, 2024
Nigeria's naira hits record low against dollar despite Central Bank measures
Nigeria's naira

's currency, the naira, hit a record intra-day low against the on Friday, following a recent devaluation, marking its second adjustment in less than a year. This decline comes despite assurances from the central bank regarding improving liquidity in the economy.

Central bank governor Olayemi Cardoso stated that over $1 billion had flowed into the economy in recent days to purchase Nigerian Treasury bills after the successful auctioning of one trillion naira ($678.60 million) worth of notes, which were oversubscribed. While Cardoso emphasized that measures implemented by the bank to enhance dollar supply have stabilized currency volatility, he also noted the necessity of moderating forex demand for these measures to remain sustainable.

In response to the currency challenges, the central bank raised open market rates to 19% from under 12%, aiming to attract investors to Treasury bills, which had lost appeal compared to equities amid high inflation rates. Additionally, the central bank eliminated caps on interbank forex spreads to foster a more market-oriented exchange rate mechanism.

Despite these measures, Nigeria's largest economy has been grappling with a severe dollar shortage, leading to a depreciation of its currency to record lows in recent weeks. The official naira exchange rate experienced a significant decline to as low as 1,531 per dollar last week, well below black market levels, following changes in the market regulator's closing rate calculation methodology, effectively leading to a devaluation.

On Friday, the naira dropped further to an intra-day low of 1,540, surpassing the unofficial parallel market rate of 1,449.27 naira quoted for the dollar. The central bank is scheduled to hold its first rate-setting meeting under Cardoso's leadership on Feb. 26, with analysts anticipating a rate hike of at least 200 basis points to 20.75%.

Moreover, Nigeria is considering proposing that gas producers sell gas to local power plants in naira to address challenges associated with dollar shortages. This move comes amid expectations of increased costs and payment difficulties for firms following the recent currency devaluation.

The central bank has also vowed to punish entities involved in fraudulent foreign exchange trades, following a forensic audit that revealed irregularities affecting $2.4 billion worth of transactions. Despite ongoing efforts to clear forex backlogs, Nigeria continues to grapple with a dollar shortage, although Cardoso has expressed optimism about improving dollar liquidity in recent days.

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