Nigeria’s naira has plummeted to a record low of N1600 per dollar, even as the Central Bank of Nigeria (CBN) implements new measures to stabilize the currency and manage its foreign exchange (FX) reserves.
This decline comes despite a significant increase in international payments, marking a turbulent period for Nigeria’s economy.
According to recent data from the CBN, international payments surged by 30.8% year-on-year to $3.31 billion between January and May 2024.
This increase is driven by a notable rise in foreign debt service payments, which have jumped by 96.3% to $2.19 billion.
Also, direct remittances from Nigerians living abroad saw a 28.5% increase, reaching $841.37 million.
The surge in international payments underscores Nigeria’s growing financial obligations and heightened economic activity.
However, the naira’s depreciation reflects ongoing challenges in the FX market. The local currency’s decline is partly attributed to a shortage of FX liquidity and the effects of the CBN’s “willing buyer, willing seller” policy, which has raised concerns about its impact on the naira’s value.
In response to these challenges, the CBN has reintroduced the Retail Dutch Auction System (RDAS), aiming to enhance transparency in FX pricing and stabilize the naira.
The RDAS, which had been previously abandoned, is part of a broader strategy to manage FX demand and provide a more structured approach to currency allocation.
The CBN’s efforts include selling US dollars directly to FX users and offering government instruments at higher clearing rates to attract both local and foreign investors.
Despite these measures, the naira has continued to struggle, with the CBN receiving bids amounting to $1.18 billion during the latest RDAS auction.
However, about $313.69 million in bids were disqualified due to procedural issues.
The recent auction successfully sold $876.26 million at a cut-off rate of N1,495 per dollar. While this move is expected to provide some relief in the short term, analysts caution that the naira’s stability may be fleeting if the CBN does not sustain its interventions in the FX market.
“Despite the CBN’s strategic measures, the naira’s decline highlights the deeper issues within Nigeria’s FX market and economy,” said a financial analyst from Cordros Capital Limited. “The increase in international payments is positive, but without adequate FX liquidity and effective policy implementation, the naira may continue to face pressure.”