The depreciation of the Nigerian Naira against the US dollar has persisted despite the Federal Government’s attempts to stabilize its value, with the exchange rate nearing N1500 per dollar on the black market.
Market dynamics have led to the naira breaching the N1450 mark, signaling a new phase of decline after being lauded as the best-performing local currency just a few months ago.
The decline in Nigeria’s oil output, a key source of foreign exchange earnings, emphasizes the need for economic diversification and reducing foreign exchange liabilities to support the local currency.
Recent data from the Central Bank of Nigeria reveals that a significant portion of outflows went towards servicing external debt rather than defending the naira, highlighting the strain that foreign debt is placing on the country’s finances.
The upcoming monetary policy meeting on May 21 is expected to see the CBN maintain a hawkish stance and potentially raise interest rates to provide additional support to the FX market.
While efforts have been made to clear FX backlogs and attract foreign portfolio investments, challenges such as profit-taking and reduced inflows continue to impact the local money market.
Khan suggests that the demand for dollars will rise, and offshore investors have already made a profit from the currency’s rapid appreciation.
Despite signs of a slowdown in the US economy, the dollar index has increased slightly, indicating its strength against other currencies.
The yen and the euro have both fallen in value against the dollar. The Bank of England’s announcement of potential rate cuts and positive data on the British economy have contributed to the positive momentum for the dollar.
Investors are now waiting for indications that US inflation is decreasing towards the Federal Reserve’s target rate. April’s inflation figures were higher than expected, reducing the likelihood of an interest rate cut in the near future.
US Treasury rates have increased as investors anticipate the release of important inflation data next week, which will influence the Fed’s monetary policy decisions.
