Naira lukewarm despite weak dollar index

The naira bounced and settled at N1,565/$ in the unofficial market, compared to Monday’s settlement rate of N1,570 per dollar.

CBN data showed that the local currency depreciated in the official market on Tuesday, settling at N1,537 per dollar, down from Monday’s settlement price of N1,528/$ against the dollar.

Market actions highlighted the naira’s fragility, despite several foreign exchange market reforms aimed at increasing transparency and attracting foreign investors.

Limited foreign exchange inflows, driven by weak oil production and uneven fiscal reforms aimed at generating revenue, have put tremendous pressure on the naira despite monetary interventions.

The West African nation’s OPEC quota is pegged at 1.5 million barrels daily. The decline in February shows that Africa’s most populous country lost roughly 2.1 million liters of crude oil in a month, or 70,000 barrels per day on average.

However, Chatham House, a think tank institution, recently stated that the naira’s depreciation has helped the economy. They noted it improved Nigeria’s balance of payments, which is now in surplus, and brought capital back into the nation. Consequently, the CBN boosted its foreign exchange reserves to over $40 billion, guaranteeing a level of reserves essential for financial stability.

Nigeria’s external debt may still be higher, but the CBN’s gross reserves are currently “at a prudent level,” according to the institution, which praised the CBN’s progress. Additionally, the devaluation of the naira has significantly bolstered the Nigerian budget.

“Nigeria’s budget was more severely impacted in recent years by a misaligned exchange rate, according to the World Bank, than by the expense of the government’s fuel subsidies,” the think tank stated.

The dollar index, which compares the currency’s value to a basket of six major peers, increased marginally to 103.5 during the London trading session after plunging 0.46 percent on Tuesday, reaching 103.2 index points for the first time since October 16.

The Canadian dollar remained stable after a tumultuous Tuesday session in which Trump promised to raise steel and aluminum tariffs to 50% but later withdrew his commitment. Traders anticipate another quarter-point decline in interest rates when the Bank of Canada makes its announcement later on Wednesday.

The American equity market will likely continue to suffer due to tariff concerns and Trump’s recession talk. Unfortunately, the naira hasn’t benefited from this situation.