The naira’s depreciation by 2.4% and 2.6% in March at the Nigerian Autonomous Foreign Exchange Market window and parallel market, respectively, has sparked concerns about the currency’s stability. Despite the Central Bank of Nigeria’s (CBN) intervention, injecting $668.8 million into the foreign exchange market, the naira continued to weaken. This article provides an in-depth analysis of the factors contributing to the naira’s decline and the potential implications for the Nigerian economy.
The naira’s depreciation is a worrying trend that has been unfolding over the past few months. According to data from the CBN, the naira has lost significant value against the US dollar, with the exchange rate hovering around N1,536.82/$ at the NAFEM window and N1,530.00/$ at the parallel market.
ALLCO Capital’s monthly macroeconomic market report for March reveals that the naira faced significant demand pressure despite the Central Bank of Nigeria’s intervention. The CBN injected $668.8 million into the foreign exchange market to stabilize the naira, but the currency continued to experience downward pressure
Several factors have contributed to the naira’s decline, including:
– Persistent Demand Pressure: Robust demand from foreign portfolio investors and local corporates has put pressure on the naira.
– CBN Intervention: The CBN’s $668.8 million intervention was insufficient to stabilize the naira, which weakened by 2.97% month-over-month.
– Global Risks: US tariffs and retaliatory measures may spur volatility and capital flight, further pressuring the naira.
The naira’s decline has been mirrored in the parallel market, where the exchange rate has depreciated by about N43.50/$ to N1,536.00/$. External reserves have also fallen by $110 million to $38.31 billion, further exacerbating the currency’s decline.
Several experts have weighed in on the naira’s decline, including, Former Zenith Bank chief economist Marcel Okeke warns that the Trump-led tariff war could trigger inflation globally, with Nigeria particularly vulnerable due to its import dependence. Analysts at Afrinvest project that the naira will remain pressured in the near term, barring any unforeseen shocks.
The naira’s decline has significant implications for the Nigerian economy, including:
– Inflation: The naira’s depreciation could lead to higher inflation, as imported goods become more expensive.
– Economic Growth: The currency’s decline could also impact economic growth, as foreign investors become more cautious.
The naira’s decline despite the CBN’s intervention is a worrying trend that requires careful analysis. The factors contributing to the currency’s decline are complex and multifaceted, and the implications for the Nigerian economy are significant. As the situation continues to unfold, it is essential to monitor the naira’s performance and adjust economic policies accordingly.