Naira Plummets by 7% as Nigeria’s FX Crisis Hardens
The Nigerian naira plummeted by about 7% in the foreign exchange (FX) market as the US dollar shortage exerted pressures on demand and supply. The more the Central Bank of Nigeria (CBN) is making efforts to save the local currency, the less its policy effects on exchange rate.
In a chat, a Broadstreet financial expert said the problem with naira is multidimensional. He said a country with a faulty economic structure cannot have a strong local currency – there is a need to rework the policy that will generate FX receipts for the country.
“The authority must look inward for many things that are taking forex away from the country and fix it—that is, reform. What we have ongoing isn’t a holistic reform; it is a convenient reform, and it is damaging to individuals and companies who have been bedridden with FX losses.”
A slew of analysts are predicting that the naira fluctuation will continue to impact companies with US dollar liabilities as the local currency has failed to stabilised since the last quarters. Data published on the Nigerian Exchange in the second quarter of 2024 showed that a growing number of listed companies have had their shareholders funds erased due to huge FX losses.
This triggered near corporate distress and has negatively impacted productive capabilities and overall private sector performance, analysts said, citing the purchasing manager index (PMI) report.
FX Market Bleeds
MarketForces Africa reported that FX spot data from the FMDQ platform revealed that the naira depreciated by 6.83%, closing at N1,658.97 per US dollar at the official market.
Weak FX liquidity in the currency market has kept exchange rates on the high side several months after official devaluation. Nigeria is facing an acute US dollar shortage due to excessive focus on oil exports as a major driver of foreign currency receipts.
Due to various oil-backed loans, government FX revenue has reduced while the country struggles to meet the Organisation of the Petroleum Exporting Countries (OPEC) daily quota. Analysts hinted that while the naira is falling, the external reserves balance has continued to make an uptrend, reaching $38.67 billion.
But the larger part of the gross foreign reserves is noted to have been pledged in a series of oil-backed loan deals entered into by the Nigerian National Petroleum Corporation Limited. In the parallel market, the naira closed at ₦1,680 to the US dollar due to a deficiency of strong foreign currency stock on the supply side.
Oil prices declined more than 4% in the global commodity market following reports that Israel assured the U.S. it has no plans to target Iran’s oil facilities. An Israeli official statement alleviated concerns about a potential disruption in Middle Eastern oil supply. Brent prices decreased by 4.42% to $74.04, and WTI prices saw a 4.67% drop to $70.38.
Meanwhile, gold prices rose, supported by falling Treasury yields, as investors awaited further data for insights into the Federal Reserve’s monetary policy. Gold reached $2,680.10 per ounce. #Naira Plummets by 7% as Nigeria’s FX Crisis Hardens
