The Naira experienced a reversal of recent gains last week, depreciating against the U.S. dollar in both the official and parallel markets. By the close of trading, the naira weakened by 1.66%, falling to 1,517.24/$ from 1,492.49/$ the previous week at the official market. Similarly, the parallel market saw the naira ease to an average rate of 1,520/dollar, with some Bureau De Change operators reporting a N70 loss, closing at 1,570/dollar.
In February 2025, the naira had seen an 8.5% gain month-on-month in the parallel market, settling at 1,490/$, while the official market rate closed at 1,500/$, reflecting a 1.7% month-on-month decline. Despite a positive outlook for March, the currency faced pressure in the first week due to increased demand for the dollar, especially from foreign portfolio investors and local corporates, who contributed to the tightening of dollar liquidity.
AIICO Capital Limited noted that the naira’s depreciation was driven by these increased demands and tight liquidity, which even interventions from the Central Bank of Nigeria (CBN) could not offset. Similarly, analysts from CardinalStone pointed to profit-taking actions by foreign investors and local corporates as contributing factors. While the CBN’s interventions at the interbank market provided some support, the pressure from these factors continued to weigh heavily on the currency.
Experts believe that the Central Bank’s continued support, with reserves standing at $38.35 billion as of early March, could provide a buffer for the naira, easing the pressure on the currency in the medium term. Some analysts, like those at Cowry Assets Management and Afrinvest, project that the naira will maintain a positive performance if the CBN continues supplying dollars to markets, barring any significant shocks. However, challenges such as Nigeria’s mounting debt, declining foreign reserves, and high inflation rates continue to pose risks to the naira’s stability.
SOURCE: PUNCH