Naira Hits Six-month Low Amid Volatility and Dollar Liquidity Woes

Samuel Mobolaji

Nigeria’s naira has experienced a dramatic decline, hitting its lowest exchange rate in six months against the U.S. dollar. On August 4, 2024, the naira fell to N1,625.88/$1 on the official NAFEM market, the weakest performance since March 8, 2024, when it traded at N1,627.4/$1.

This recent depreciation marks a 0.89% drop from the previous day’s rate of N1,611.34/$1, reflecting sustained pressure on Nigeria’s currency.

The naira’s trading range on that day was notably volatile, with fluctuations between N1,400/$1 and N1,640/$1.

This instability is exacerbated by broader economic challenges, including a recent hike in petrol prices that threatens to further inflate costs and strain both businesses and households.

Compounding the issue, foreign exchange (FX) turnover for the day declined by 1.84%, dropping to $205.76 million from $209.61 million the previous day. August 2024 has seen a sharp 25% decrease in total FX turnover, plummeting to $3.25 billion from $4.34 billion in July, according to FMDQ data. This decline underscores the persistent liquidity problems plaguing the Nigerian FX market.

The Central Bank of Nigeria (CBN) faces ongoing difficulties in stabilizing the naira amid declining liquidity and increased market strain. The consistent drop in FX turnover and daily rate fluctuations highlight the challenges the CBN faces in maintaining the naira’s value. There are growing concerns that if these conditions persist, further depreciation could be imminent.

The naira’s plight has attracted global attention. A Bloomberg report from June 2024 named the naira as the worst-performing currency worldwide during the first half of the year, illustrating the severity of the crisis.

This report came shortly after CBN Governor Yemi Cardoso expressed cautious optimism about the bank’s efforts to manage the currency crisis. Cardoso acknowledged that the future of the naira depends on various factors, including fiscal policies and market conditions, indicating a precarious path forward.

In this turbulent environment, the CBN is actively pursuing macroeconomic strategies to stabilize the currency. However, the persistent demand pressure, insufficient dollar liquidity, and ongoing market volatility present significant challenges.

Alongside the naira, other African currencies, including Egypt’s pound and Ghana’s cedi, have also struggled, ranking among the worst-performing currencies globally in early 2024. This broader regional trend paints a bleak picture for several African economies.

As Nigeria navigates these economic challenges, the future of the naira will largely depend on the country’s ability to address the root causes of its depreciation. Without substantial improvements in dollar liquidity and market stability, the naira’s struggles may continue, with far-reaching implications for Nigeria’s economy.