Nigeria's Naira Plummets toWorld's Worst Performing Currency

Nigeria's naira has become the world's worst-performing currency, depreciating to 1,466.31 against the dollar due to a scarcity of US currency. The Central Bank of Nigeria is under pressure to raise interest rates again after a previous hike in February and March.

Nitish Verma
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Nigeria's Naira Plummets toWorld's Worst Performing Currency

Nigeria's Naira Plummets toWorld's Worst Performing Currency

Nigeria's naira has experienced a significant decline, emerging as the world's worst performing currency over the last month, according to a recent Bloomberg report. The naira has depreciated to 1,466.31 against the dollar, marking its weakest level since March 20.

Why this matters: The decline of the naira has far-reaching implications for Nigeria's economy, affecting not only consumers and businesses but also the country's ability to attract foreign investment. A weak currency can also exacerbate inflation and undermine the government's ability to implement effective economic policies.

The decline is attributed to the local scarcity of the US currency, with only $84 million available on Thursday, half of the previous day's supply. Additionally, $1.3 billion in naira futures are expected to mature at the end of this month, potentially dampening market sentiment and creating more demand for dollars.

Razia Khan, Chief Economist for Africa and the Middle East at Standard Chartered, stated, "The belief is that this will create more demand for dollars... This is completely in line with the functioning market."

The development has placed increased pressure on the Central Bank of Nigeria (CBN) to continueraising interest rates. The CBN governor, Yemi Cardoso, had previously hailed the naira as the best-performing currency globally as of April 2024. However, the naira faced challenges in March, plummeting to as low as N1,600/$1 on the official market and N1800/$1 on the parallel market.

The decline in the naira's performance is expected to intensify pressure on the CBN to implement another rate hike after its upcoming policy meeting on May 21. The Central Bank increased rates by a total of 600 basis points in February and March, which aided the naira in rebounding from its low of 1,627 naira on March 8 to 1,072 in mid-April.

The weakness of the naira was also seen in the unofficial market, where it depreciated by 0.9% to N1,468 against the dollar on Friday. The fluctuations in the naira's value have been challenging for the Nigerian economy, straining both consumers and businesses.

Two other African nations, Zambia and Ghana, have also experienced currency depreciation, with the Zambian kwacha reaching a historic low against the dollar and Ghana's cedi dropping to its weakest level since 2022. Both countries are currently undergoing debt restructuring processes, which are likely weighing on capital flows.