Naira steadies despite global dollar weakness as FX pressures persist
The Nigerian naira exhibited minimal movement in the foreign exchange market on Tuesday, resisting a broader decline of the U.S. dollar globally.
Despite continued foreign exchange market reforms, the naira remains under pressure due to weak oil revenues and limited foreign currency inflows.
In the unofficial market, the naira appreciated slightly, settling at N1,565 per dollar from Monday’s rate of N1,570/$.
However, official market data from the Central Bank of Nigeria (CBN) showed a depreciation, with the naira closing at N1,536.15/$ compared to N1,530.15/$ on Tuesday.
“Despite the CBN’s reforms aimed at improving transparency and attracting foreign investment, the fundamental issue remains: weak foreign exchange inflows,” said financial analyst Adebayo Olayemi. Without stronger oil revenues and diversified sources of forex earnings, the naira will continue to struggle.”
Data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) shows a decline in crude output from 1.54 million barrels per day (bpd) in January to 1.47 million bpd in February, below the Organization of the Petroleum Exporting Countries’ (OPEC) allocation of 1.5 million bpd.
This shortfall translates to a loss of approximately 2.1 million barrels over the month.
Experts attribute the declining output to underinvestment in energy infrastructure, oil theft, and vandalism. These challenges have further strained Nigeria’s foreign reserves and limited the CBN’s ability to stabilize the naira.
Despite these challenges, global policy institutions see some benefits in the naira’s depreciation.
A recent report from Chatham House suggests that the weaker naira has improved Nigeria’s balance of payments, leading to an increase in capital inflows.
The CBN’s forex reserves have reportedly surpassed $40 billion, providing a cushion for financial stability.
“Nigeria’s external debt remains high, but the CBN’s progress in boosting reserves is commendable,” Chatham House stated.
The report further highlighted that a misaligned exchange rate in previous years caused greater fiscal distress than the government’s costly fuel subsidies, according to World Bank assessments.
The U.S. dollar index, which tracks the currency against six major global peers, rebounded slightly to 103.5 during the London trading session on Wednesday, following a sharp 0.46 per cent decline the previous day.
Economic concerns persist in the United States, with small-business confidence declining for the third consecutive month in February.
Investor apprehension has been further fueled by former President Donald Trump’s trade policy statements, which hinted at potential recessionary effects.
The dollar’s struggles have also been compounded by uncertainty surrounding the ongoing conflict in Ukraine and fluctuating commodity prices.
Despite these global uncertainties, the naira has failed to capitalize on the dollar’s weakness, reflecting the persistent structural issues in Nigeria’s economy.
Financial experts caution that without significant improvements in oil production and a diversified approach to forex earnings, the naira will remain vulnerable to external pressures and domestic constraints.
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