The Nigerian Naira depreciated against the United States Dollar on Wednesday at the official foreign exchange market following the Central Bank of Nigeria‘s decision to raise the nation’s interest rate by 150 basis points.

The Naira exchange rate depreciated by 0.24% against the United States Dollar from N417.79 opens on Wednesday to N418 on Wednesday at the FMDQ managed foreign exchange section adopted by the central bank as the official exchange rate.

Data obtained by Investors King showed the local currency remained under pressure at the parallel section of the forex market, the popular black market. In the unregulated forex market, the Naira was exchanged at N608 to a United States Dollar, N1 decline from N607 it exchanged on Tuesday.

Foreign Reserves

The Nigerian foreign reserves declined from $38.837 billion recorded on May 18, 2022 to $38.625 billion in the latest data from the Central Bank of Nigeria. Indicating that $212 million decline in the last seven days.

The Nigerian Naira is backed by the nation’s foreign reserves. Therefore, the persistent decline in the reserves dragged on the local currency exchange rate against its global counterparts., hence why Naira is trading at a record-low against the United States Dollar.

Crude Oil

On Thursday, oil prices extended gains on supply concerns as the European Union disagree with Hungary on plans to impose sanctions on Russian crude oil imports.

The Brent crude oil, against which Nigerian oil is priced gained 1.4% to $115.63 a barrel as of 4:54 pm Nigerian time while the U.S. West Texas Intermediate (WTI) crude appreciated by 2.1%, to $112.66 a barrel.

As a crude oil-dependent economy, Nigeria relies on crude oil sales for foreign revenue generation and to service its petrol-dollar economy. However, despite crude oil trading at a record-high since Russia invaded Ukraine, Nigeria has been unable to up crude oil production.

A recent data from the nation’s statistics bureau showed Africa’s largest crude producer, produced 1.4 million barrels per day in the first quarter of 2022, down from about 1.7 million barrels per day achieved in the same period of 2021.

This inability to up production, explains why Nigeria’s foreign reserves and the Nigerian Naira have been on a downward trend despite crude oil trading at over $115.63 a barrel.