The naira faced a tough week at the official exchange window, depreciating by 1.25% to close at 1536.89/$ on Friday, as Nigeria’s currency continued to struggle under mounting pressures. According to the Central Bank of Nigeria (CBN) data, the naira started the week on a weak footing at 1,528.03/$, a slight dip from 1,517.93/$ in the previous trading session. Despite some attempts to regain strength midweek, the naira ultimately ended the week lower, deepening concerns over the country’s ongoing foreign exchange (FX) challenges.
The depreciation comes amid reports that negotiations surrounding the naira-for-crude agreement between the Nigerian National Petroleum Corporation Limited (NNPCL) and local refineries had stalled. This has intensified market worries, as the NNPCL and refineries are set to resume discussions this week with hopes of extending the contract. Meanwhile, Dangote Petroleum Refinery has halted petroleum product sales in naira, citing a currency mismatch. This move has raised alarms among oil marketers and industry experts, who warn that the decision could exacerbate pressure on the already struggling FX market. Now, oil dealers will need to source large amounts of US dollars to purchase petroleum products, further straining the naira.
Despite efforts by the CBN to stabilize the naira through interventions aimed at boosting FX supply to banks and Bureaux De Change (BDC), the currency’s decline continues. Analysts argue that these efforts might only provide temporary relief without structural reforms to tackle Nigeria’s long-standing FX issues. “We expect a mixed outlook for the naira as demand for the dollar intensifies and speculators continue to exploit arbitrage opportunities,” said experts at Cowry Assets Management. However, they anticipate that the CBN will maintain its weekly interventions to stabilize the local currency.
At the parallel market, the naira showed some signs of recovery, appreciating by 0.77% week-on-week to close at an average of 1,568/$, according to Afrinvest. This suggests a slightly improved outlook for the naira on the unofficial market, though stability remains uncertain.
Meanwhile, Nigeria’s foreign reserves saw a slight decline of 0.06% from $38.37 billion to $38.35 billion, as the CBN continues to defend the local currency in the face of minimal foreign exchange inflows. The challenges facing the naira are compounded by subdued foreign portfolio investor participation, driven in part by concerns over oil receipts due to lower oil prices.
On a more positive note, global oil prices showed a 3% increase last week, reaching around $85 per barrel. This rise was fueled by supply concerns, following new US sanctions on Iran aimed at curbing its nuclear ambitions, along with OPEC+ reaffirming its commitment to production cuts until June 2026. While this uptick in oil prices may provide some relief for Nigeria’s FX reserves, the country’s heavy dependence on oil revenue makes it vulnerable to external shocks, including geopolitical tensions that can disrupt oil supply and pricing.
As the naira continues to face turbulence, all eyes will be on the CBN’s next steps in managing the currency crisis, with analysts closely monitoring the ongoing discussions over oil supply and the potential impact on Nigeria’s economic stability.
