Naira falls nearly 6%, steepest daily fall since May 30

Nigeria’s currency, which has endured a volatile week, fell to a record low on Thursday after dollar liquidity in the domestic foreign exchange market shrank by nearly half.

The naira declined 5.8% to close at 1,649.76 per dollar on the official market, the steepest daily drop since May 30, according to data compiled by Bloomberg.

The currency’s month-to-date loss of 3.3% makes it the worst performer among world currencies.

The loss reversed the naira’s gain on Wednesday when it rallied 4.8% after the government successfully raised $900 million in a debut domestic dollar bond. Analysts blamed a lack of US currency supply after domestic dollar liquidity fell 48% to $114 million.

“There is still naira pressure given the foreign-exchange flow imbalances,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank. While the central bank resumed selling dollars to local bureau de change traders this week, “larger and more targeted supply may be needed to stabilize the naira in the absence of portfolio inflows,” he said.

The currency has lost around 70% against the dollar since President Bola Tinubu last year relaxed restrictions that kept it artificially overvalued in the hope this would spur foreign investment. But these have been slow in coming and it has struggled to find a footing.

Read also: Naira rallies on record domestic dollar-bond

Seasonal factors are also in play, with currency demand high among wealthy Nigerians who travel at this time of year or need to pay foreign school fees.

Lower yields on treasury bills offered by the central bank have also been a factor, said economist Omobola Adu at BancTrust & Co. Investment Bank.

The Central Bank of Nigeria sold 148.5 billion naira ($90 million) of 364-day treasury bills on Sept. 11 at a yield of 18.59%, the lowest since January.

A slowdown in inflation in July has raised hopes that the central bank will pause rate cuts at its next policy meeting later this month, giving some people pause.

“When investors consider the reward-risk trade-off, they are cautious and want to exit,” said Adu, who expects the naira to improve to end the year around 1,500 per dollar, helped by additional central bank intervention, provided Tinubu delivers on promised economic reform.

“The government has to improve policy credibility,” Adu said. “They have to stick to what they say they’re going to do, as a way to reassure investors.”