Naira Plummets to Two-Month Low Despite Central Bank Intervention

In a notable setback, Nigeria’s naira weakened by 5.1% on Thursday, closing at N1,533.99 to the dollar, its lowest level since March 20. This decline follows the Central Bank of Nigeria’s (CBN) recent efforts to bolster the currency, according to data from FMDQ, the official trading platform.

Despite the CBN’s intervention earlier in the week, the naira’s drop reversed a 4% gain seen on Wednesday. The central bank had injected between $80 million and $100 million into the market to increase liquidity, which surged to $289 million mid-week. Additionally, the CBN had also sold dollars on Monday.

This development comes ahead of a crucial rate decision expected on Monday by the CBN’s monetary policy committee. Analysts predict another rate hike to attract foreign investment. The CBN has already raised rates by a total of 600 basis points in February and March to combat inflation, which is at a 28-year high.

The devaluation marks a volatile period for the naira, which appreciated by 40% from mid-March to early April, only to weaken by 24% over the past month. Market experts, including Samir Gadio, head of Africa strategy at Standard Chartered Bank, highlight concerns over $1.3 billion in naira futures contracts maturing later this month. Gadio noted the uncertainty among investors about whether to convert these proceeds into dollars or reinvest in local debt.

The current administration under President Bola Tinubu, approaching its one-year anniversary on May 29, has twice devalued the naira to attract investment and restore confidence in the currency. However, the recent volatility underscores ongoing challenges in stabilizing the naira amid economic pressures.