Naira tumbles past 1,500 to dollar – first time in 2 months

The Naira extended its latest decline Tuesday, tumbling below N1500 on the parallel market for the first time in two months and dimming hopes for cheaper goods for Nigerians already squeezed by high inflation.

The currency exchanged at N1510 on the parallel market, affected by the scarcity of the dollar, according to traders contacted by Pluboard.

The naira had been on an upswing in recent weeks, boosted by a series of central bank policies, including interest rate hikes, aimed at increasing dollar supply and curbing inflation.

It strengthened to N1,170 against the dollar on April 18 following a record decline in February to nearly N1,900 on the parallel market and over N1600 on the official market. The rapid rise provided hope for stability and potential price cuts on consumer goods.

The last time the currency fell crossed 1500 was on March 20 when it traded at N1,509.603 against the dollar on the unofficial market, according to Naira Rates, which tracks daily rates on the so-called black market.

The naira was the world’s worst performing currency in the last month just a month after its performance as the world’s best currency, accord to Bloomberg data.

The reversal in fortunes has dimmed hopes for price reduction. Inflation reached 32.2% in March, the highest since 1996.

Impact on Consumers and Businesses

A weaker naira has direct implications for Nigerians:

• Import Costs: Imported goods, including essential commodities, raw materials, and machinery, will become more expensive. Businesses relying on imports may face higher production costs.
• Consumer Prices: With a devalued Naira, prices of consumer goods are likely to rise. Food, fuel, and other essentials could become costlier, impacting household budgets.
• Investor Confidence: Foreign investors closely monitor exchange rate stability. The recent depreciation may raise concerns about Nigeria’s investment climate.

Reversal of fortune

Analysts see the decline as consistent with increased demand for dollars and foreign investors’ slow demand for Nigerian assets amid concerns over dwindling foreign reserves.

Razia Khan, chief economist for Africa and the Middle East at Standard Chartered, said the pressure will mount as an estimated $1.3 billion in naira future obligation will be due for settlement at the end of this month.

“The belief is that this will create more demand for dollars,” she told Bloomberg.

The governor of the Central Bank of Nigeria, Yemi Cardoso, said the bank’s monetary policy will maintain high interest rates to curb inflation.