The naira faced significant challenges at the official exchange rate window last week, depreciating by 1.25% to settle at 1536.89/$ by Friday. Starting the week at 1,528.03/$, the currency’s decline continued despite some recovery mid-week, as it fell further by Friday. This depreciation was linked to stalled negotiations between the Nigerian National Petroleum Corporation (NNPC) and local refineries over the naira-for-crude agreement, with experts predicting renewed talks this week.

As the negotiations stalled, Dangote Petroleum Refinery temporarily halted sales in naira, citing currency mismatch concerns, which experts believe could put additional pressure on the foreign exchange market. This halt means petroleum products would need to be purchased using US dollars, further increasing demand for foreign currency. Despite efforts by the Central Bank of Nigeria (CBN) to inject more foreign exchange into the market, analysts warn that such interventions may offer only short-term relief without deeper structural reforms to address Nigeria’s ongoing currency challenges.

In the parallel market, the naira gained some ground, appreciating by 0.77% to close at 1,568 per dollar, while CBN’s foreign reserves slightly declined to $38.35 billion. The fall in reserves is attributed to the CBN’s continued interventions, with minimal foreign inflows into the market. Experts at Cowry Assets Management foresee a mixed outlook for the naira due to rising demand pressures for the US dollar and speculative trading activities.

The broader economic landscape remains influenced by fluctuations in global oil prices, with Brent crude rising 3% to $85 per barrel. Oil-related developments, such as US sanctions against Iran and OPEC+ production cuts, could further impact Nigeria’s foreign exchange inflows, given the nation’s reliance on oil revenue. These factors suggest that the naira’s stability may remain uncertain in the near term.

source: punch