Nigeria’s Naira Collapses To A Record Low As Oil Prices Slide

Nigeria’s Naira Collapses To A Record Low As Oil Prices Slide

The Nigerian Naira weakened 2.9 percent to touch a new record low of 184.05 against the dollar on Monday according to Bloomberg data as a slump in global oil prices and expectations that foreign investors would pull out of local assets dimmed the outlook for Africa’s biggest crude producer.

“If you talk to international investors, they are concerned about the exchange rate outlook because of weaker oil prices and fiscal issues.” Samir Gadio, head of African strategy at Standard Chartered Bank Plc in London, told Bloomberg.

Nigeria, Africa’s largest economy, relies heavily on oil for government revenue and export earnings. Oil sales provide nearly all of Nigeria’s foreign exchange reserves.

But surging crude oil supplies in the U.S. amid limited demand growth has created a glut in the international markets, pushing crude prices down 37 percent this year to a five-year low of $67.53 touched on Monday.

Last week the Nigerian Central Bank devalued the local currency by 8 percent as the bank struggled to keep it within the preferred band of 5 percent plus or minus 168 to the dollar and halt a decline in the foreign reserves.

The Naira has fallen 11 percent against the dollar since Oct. 1, the second worst fall in Africa so far this year after Malawi’s Kwacha.

Dealers told Reuters that the likelihood of even lower oil prices and depletion of Nigeria’s oil reserves further threatens to sink the Naira to new record lows in coming days and reigniting inflationary risk.

Consumer price changes in the west African nation have stayed within single digits for the past two years for the first time in years.

Bloomberg reported that yields on Nigeria’s dollar July 2023 bond climbed 36 basis points to 6.11 percent, an eight-month high, and for the first time above similar-maturity debt for lower-rated Kenya, a net oil importing country.