Naira’s Value Drops, Now the Worst Performing Currency Worldwide

Nigeria’s naira has taken a downturn, emerging as the worst-performing currency globally over the past month, as per a recent Bloomberg report.

This development increases pressure on the Central Bank of Nigeria to consider further interest rate hikes, with the naira depreciating to 1,466.31 against the dollar, its weakest level since March 20.

The decline is attributed to a scarcity of the US currency locally, with only $84 million available on Thursday, half of the previous day’s supply.

Previously hailed as the best-performing currency globally in April 2024 by CBN governor, Yemi Cardoso, the naira faced challenges in March, dropping to as low as N1,600/$1 on the official market and N1800/$1 on the parallel market.

Cardoso credited this achievement to foreign exchange market reforms and positive sentiment from leading international investment institutions.

However, Chief Economist for Africa and the Middle East at Standard Chartered, Razia Khan, estimates that $1.3 billion in naira futures will mature at the end of this month, potentially creating more demand for dollars and affecting market sentiment.

The report suggests that this decline in the naira’s performance could lead to intensified pressure on the CBN to implement another rate hike after its upcoming policy meeting on May 21.

In February and March, the Central Bank increased rates by a total of 600 basis points, aiding the naira in rebounding from its low of 1,627 naira on March 8 to 1,072 in mid-April, as investors sought out higher-yielding local assets.

The unofficial market also witnessed naira weakness, slipping 0.9% to 1,468 naira a dollar on Friday due to increased demand from individuals and small businesses, according to Abubakar Muhammed, chief executive of Forward Marketing Bureau de Change Ltd., which monitors data in Lagos.

Additionally, two other African countries rank among the four worst-performing currencies in the last month, with the Zambian kwacha hitting a record low and Ghana’s cedi weakening to its lowest level since 2022, both countries undergoing debt restructuring processes.

Chief Investment Officer for UK-based Emerging Markets Investment Management Ltd., Ayodele Salami, noted that delays in reaching debt restructuring agreements with private creditors for Ghana and Zambia are likely affecting capital flows, making it unlikely for them to attract fresh capital until negotiations are concluded.

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