Naira plunges after weeks of stability as demand pressure mounts

The naira weakened further against the US dollar on Tuesday, extending losses from earlier in the week as demand for the greenback surged. The local currency depreciated to ₦1,536.15 in official markets, while the parallel market rate dropped to ₦1,580, according to foreign exchange data.

This comes after the naira struggled on Monday, briefly recovering to around ₦1,538 after falling nearly 4% the previous week. Analysts had expected the Central Bank of Nigeria (CBN) to step in with support, but pressure on the currency has intensified due to rising dollar demand from foreign investors and mounting debt service obligations.

On Tuesday, the naira traded between ₦1,520 and ₦1,540 before settling lower, reflecting increased pressure from limited dollar supply. Market data from FMDQ showed that total foreign exchange inflows fell by 12.9% in February to $4.12 billion, down from $4.74 billion in January. The decline was largely driven by a 36.3% drop in CBN contributions and reduced inflows from both foreign and local sources.

Low Reserves

Nigeria’s external reserves also dipped to $38.35 billion, weighed down by uncertainties in global commodity markets and lower oil revenues. Oil, which provides the bulk of Nigeria’s foreign exchange earnings, has struggled in recent weeks, with Brent crude futures trading around $69.64 per barrel. Though prices inched higher on Tuesday, concerns over a slowing U.S. economy and potential global trade disruptions limited gains.

With external reserves under pressure and forex supply constrained, analysts expect the CBN to sustain interventions to stabilize the naira, but challenges remain as demand continues to outweigh supply.

The president of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe, attributed the crash to the huge demand for forex due to the windfall from some contractual payments and releases by some Federal Government agencies.

“Our findings revealed a lot of the demands came from the windfall of some contractual payments and releases. This unfortunate development underscored the regulator’s need for consistency in implementation of reform policies in a volatile forex market,” he told Nairametrics.

“While we will continue to communicate to the public that the seldom shock is fictitious, discretionary and a burble that will burst, it is also germane for the CBN to ensure the harnessing and coordination of supplies to the critical retail end market and to continue to mull speculation, currency substitution and hoarding activities.”