Naira Depreciates Amid Global Trade War and Forex Outflows: CBN Intervenes to Boost Supply

The ongoing trade tensions between the United States and several countries, including China and the European Union, have triggered foreign exchange outflows from Nigeria, leading to a significant depreciation of the naira. Over the past two weeks, the naira has lost value, dropping by N55 to N1,600 per dollar in the parallel market, and by N6 to N1,548 in the official market. The Central Bank of Nigeria (CBN) intervened by injecting $500 million into the forex market, but the naira’s decline continued.

Global uncertainties surrounding the tariff war, particularly the U.S. imposing a 25% tariff on metal imports, have caused fears of inflation and economic contraction, shaking investor confidence. As a result, global stock markets have seen losses, and Nigeria’s stock market followed the trend with a 0.5% decline. Investors pulled funds from Nigeria, contributing to the increased demand for foreign currencies, especially the dollar, further exacerbating the naira’s depreciation.

Foreign portfolio investors, driven by fears of economic instability, began selling off Nigerian assets, including stocks, bonds, and treasury bills, and exchanged them for dollars. The outflow of foreign investments rose sharply in January, with the outflow exceeding inflow by 78%. This trend has worsened over the past few weeks, with a notable reduction in dollar supply in the market, leading to panic buying and significant pressure on the exchange rate.

Experts and currency traders are calling for continued intervention from the CBN to stabilize the forex market. There are concerns about the impact of speculative activities, limited dollar supply, and the rising demand on the naira’s value. Stakeholders argue that the CBN must maintain consistent dollar supply measures and enforce regulations to prevent further depreciation and market instability.

Source: Vanguard