The ongoing tariff war between the United States and several other nations has intensified economic uncertainty, leading to increased foreign exchange outflows from Nigeria and a two-week depreciation of the naira.
In response, the Central Bank of Nigeria (CBN) intervened in the forex market last week, injecting $500 million to stabilize the currency. However, the naira still weakened, falling by N55 to N1,600 per dollar in the parallel market—the lowest level in five weeks since February 5. In the official market, it also depreciated by N6 to N1,548 per dollar week-on-week.
Global Economic Tensions Impact Markets
The global economy remains volatile as the U.S. imposes a 25% tariff on metal imports, prompting retaliatory measures from Canada, Mexico, China, and the European Union. Concerns over rising inflation and a potential global recession have unsettled investors, causing losses in stock markets worldwide.
Reflecting these fears, the MSCI World Index, which tracks stocks from 23 developed countries, declined by 2.1% last week. Similarly, Nigeria’s stock market (NGX Exchange) fell for the second consecutive week, dropping 0.5%.
Foreign Investors Exit, Naira Under Pressure
Financial Vanguard’s investigation revealed that global uncertainty has driven foreign portfolio investors to pull their funds from Nigeria. A senior banking executive explained that investors, fearing market instability, sold off assets like bonds, treasury bills, and equities, converting their proceeds into dollars at the forex window.
This led to increased dollar demand, encouraging local buyers, who had been holding back, to enter the market, further driving up forex pressure. Panic buying intensified as the naira weakened, compounding the demand-supply imbalance.
NGX data indicates that this trend began in January, with foreign investment outflows from Nigeria’s stock market surpassing inflows by 78%. Foreign outflows totaled N45.85 billion in January, while inflows stood at N25.66 billion.
Dollar Scarcity and Naira Depreciation
The steady forex outflows resulted in a dollar shortage, triggering continued naira depreciation across forex markets. Between February 26 and March 14, the naira lost 7.4% in the parallel market, dropping from N1,490 to N1,600 per dollar. In the official market, it depreciated by 3.3% to N1,548 per dollar.
Currency traders attributed this sharp decline to weak dollar supply. A Bureau De Change (BDC) operator noted that banks stopped selling the CBN-approved $25,000 per week to BDCs, citing a review of exchange rates. As a result, demand surged while supply dwindled, pushing the naira lower.
Uncertain Outlook for the Naira
A parallel market trader, Mallam Tijani Yusuf, highlighted fluctuating rates, noting that the dollar traded at N1,600 on Friday, up from N1,400–N1,500 two weeks ago. Another trader, Farouk Yahaya, added that more people now prefer selling their dollars directly to banks due to competitive rates, reducing supply in the parallel market.
Looking ahead, traders predict that if the supply situation does not improve, the naira could slide further to N1,680–N1,700 per dollar.
Experts Call for CBN Intervention
Aminu Gwadabe, President of the Association of Bureaux De Change Operators of Nigeria (ABCON), described the naira’s recent volatility as concerning. He attributed the depreciation to factors such as excessive demand pressure, speculative trading, and a loss of confidence in the naira’s value.
To curb further declines, Gwadabe urged the CBN to maintain a steady supply of dollars and ensure that banks resume forex sales to BDCs. He also recommended clear policy communication to restore confidence and prevent speculative activities from destabilizing the forex market.
