Naira Begins New Week with Losses Against USD as Reserves Decline for 14 Straight Days
The Nigerian naira commenced the new trading week under significant pressure, depreciating against the US dollar despite showing signs of stability in the prior week. Data released by the Central Bank of Nigeria reveals mixed movements for the currency, underscoring persistent volatility within the foreign exchange market.
Daily and Weekly Performance Highlights
At the close of the last trading session before the Easter break, the naira experienced a slight appreciation of N3.09, settling at N1,380.79 per dollar compared to N1,383.88 recorded a week earlier. However, on a day-to-day basis, it weakened by N2.09 from Wednesday's rate of N1,378.70, reflecting ongoing fluctuations. Over the shortened four-day trading week, the currency posted only a marginal gain of approximately 0.2 percent, indicating relative stability but lacking strong recovery momentum.
Parallel Market Stability and Rate Gap
In the parallel market, the naira remained largely stable at around N1,410 per dollar. This stability has helped narrow the gap between the official and street exchange rates to about N30, a slight reduction from the N32 recorded earlier. On a weekly basis, the currency strengthened modestly by N2, while over the four-day period it improved by about N5, suggesting mild gains outside the official window.
External Reserves Decline and Economic Concerns
Nigeria's external reserves continued their downward trajectory, falling for the 14th consecutive day. The reserves dropped by approximately $840 million to $49.18 billion as of April 1, down from $50.02 billion recorded in mid-March. This sustained decline has raised significant concerns about the country's foreign exchange buffers, as reserves play a crucial role in supporting the naira and funding external obligations. Analysts attribute the drop partly to increased interventions by the apex bank, including an estimated $700 million in forex sales in early March aimed at stabilizing the market.
Global and Local Factors Impacting the Naira
Despite rising crude oil prices, Nigeria has not fully capitalized on improved earnings due to lower oil production levels and increased allocation of crude to domestic refineries, which have limited foreign exchange inflows. Concurrently, global uncertainties, particularly tensions involving the United States and Iran, have dampened investor appetite for emerging and frontier markets like Nigeria. Reduced participation in Open Market Operations has also contributed to the pressure, with more funds maturing than being reinvested, leading some foreign investors to convert naira holdings into dollars and exit the market.
Central Bank's Response and Market Outlook
The Central Bank of Nigeria maintains that fluctuations in reserves are part of routine market operations and not necessarily indicative of weakness. It has reaffirmed its commitment to intervening when necessary to stabilize the naira and ensure orderly market conditions. Nevertheless, with reserves declining and external pressures persisting, the outlook for the naira remains cautiously uncertain in the near term, highlighting the need for continued monitoring and strategic economic policies.
