• Tuesday, May 28, 2024
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BusinessDay

Naira slips from best performing to worst currency in the world

Naira extends depreciation to 1,515/$ despite marginal growth in external reserves

The naira has witnessed a change in fortune, emerging as the worst-performing currency in the world in April, a new Bloomberg report shows.

Bloomberg said Nigeria’s naira trajectory has taken a downward trend as the local currency which was once hailed as top performing in March has begun another round of free fall.

The report, published on Friday stated that with this slide, the central bank is poised to increase the country’s interest rate in its next monetary policy meeting slated for May 21.

The naira on Friday fell to one month-low of 1,470 against the dollar, on the parallel market also known as black market, following dollar shortage and the activities of speculators.

Traders attributed the decline to an increased demand for dollars used for the purpose of education, health and tourism.

In February ending, the naira plummeted to an all-time low nearing N2,000 to a dollar on the street while it exchanged for N1,600/$ on the official window.

This free fall of the naira resulted in Olayemi Cardoso, the CBN governor, swinging into action by mopping up liquidity and initiating policies to calm the FX market.

Between February and March, the CBN hiked the country’s interest rates by a combined record 600 basis points to 24.75 percent.

The governor also resumed the sale of $10,000 to Bureau de Change operators every week in February to put some checks on the sale of the greenback on the street.

All of these interventions made the naira see a rebound, strengthening to as high as N1,000 to a dollar, allowing for a convergence between the parallel and official market.

Razia Khan, the chief economist for Africa and the Middle East at Standard Chartered, while speaking with Bloomberg estimates that $1.3 billion in naira futures will mature at the end of this month, potentially dampening market sentiment.

“The belief is that this will create more demand for dollars,” Khan said.

“When the currency appreciated very fast, there had been a bout of profit-taking by offshore investors, and this meant that the dollar-naira exchange rate backed up again.

“This is completely in line with the functioning market,” she said.

According to the report, Abubakar Muhammed, the chief executive of Forward Marketing Bureau de Change Ltd., which monitors data in Lagos, attributed this decline to heightened demand from individuals and small businesses.

Besides Nigeria, Zambia and Ghana’s local currency also made the list of the worst-performing currencies last month.

The Zambian kwacha hit a record low of 27.3969 per dollar on Friday. Meanwhile, Ghana’s cedi weakened to 13.99 against the dollar on the same day, marking its lowest level since 2022. Both countries are currently undergoing debt restructuring processes.

“For Ghana and Zambia, the delays with reaching a debt restructuring agreement with private creditors is likely weighing on capital flows,”Ayodele Salami, chief investment officer for UK-based Emerging Markets Investment Management Ltd. told Bloomberg.

“Both countries are unlikely to attract fresh capital inflows until the ongoing debt restructuring negotiations are concluded,” he said.

Salami added that the naira, along with other African currencies, is facing pressure due to increased domestic demand for dollars, particularly to cover the costs of importing raw materials and commodities, including oil.