The Nigerian naira has reached a new record low this week, with attempts to stabilize the currency through record-high fixed-income yields and central bank intervention proving ineffective. On Wednesday, the naira weakened by 0.6%, falling to 1,681 per dollar, according to data from FMDQ, which tracks the exchange rate.
Since reforms in June 2023 that allowed the naira to trade more freely, it has lost 72% of its value. Samir Gadio, head of Africa strategy at Standard Chartered Plc, pointed out that “portfolio inflows seem to have faded over the past two weeks,” while central bank intervention to boost dollar supply has been “moderate.” He noted that demand for dollars tends to surge periodically.
Earlier this week, the Central Bank of Nigeria (CBN) sold 1.4 trillion naira ($835 million) in one-year OMO bills at a yield of 24.28%, aiming to attract foreign inflows. However, this failed to boost market liquidity, with spot turnover in the currency market falling by 10% to $196.8 million on Wednesday, well below the one-month average of $226.3 million.
Rising inflation, which stood at 32.7% in September, has kept real interest rates deeply negative, raising concerns among investors about committing to naira-based assets amid a sluggish economy. In a bid to address these issues, CBN Governor Olayemi Cardoso raised the benchmark interest rate to 27.25% in September, aiming to achieve positive real interest rates.
Meanwhile, the CBN is increasing its dollar reserves to strengthen the nation’s financial position. External reserves rose to $39.99 billion as of November 5, the highest level in almost two years, as the bank considers additional measures to boost investor confidence and inflows.
Credit: BNNbloomberg (Text Excluding Headline)
