Nigerian Naira Reaches Historic Low, Stocks Experience Significant Decline
On Monday, the Nigerian naira plummeted to unprecedented lows on both the official and unofficial markets, while stocks witnessed their largest single-day decline in over a year, as anxious investors divested from local assets.
The currency tumbled to 1,712 naira per dollar in late trades on the official market, mirroring similar declines on the unofficial market. Africa’s largest economy has been grappling with severe dollar shortages, resulting in historic lows for its currency. However, central bank Governor Olayemi Cardoso has expressed optimism, stating that foreign exchange liquidity is gradually improving.
The latest fall on the currency and stock markets comes after data showed on Thursday that the country’s inflation rate had accelerated further in January, reaching almost 30% in annual terms, driven by soaring food costs.
“Without policy moves in sight to rein in inflation, the naira will continue to devalue simply on a purchasing power basis. There are also risks that it could further deter foreign investors, given the increasingly negative real yield found in Nigerian debt securities,” said Kyle Chapman, FX markets analyst at London-based Ballinger & Co.
Stocks on Nigeria’s All-Share Index fell 3.15% on Monday after banking, consumer goods and industrial shares dropped, to post their single biggest fall since Oct. 2022.
Heavyweight Dangote Cement (DANGCEM.LG) and MTN (MTNN.LG) each fell the maximum 10% allowed on the bourse, to help drag the index to 102,395.21 points.
Stocks had been acting as a hedge against inflation for investors. Cardoso has hiked open market rates to draw investors to bills that had lost their shine to equities as inflation climbed, but treasury rates still lag the benchmark policy rate and the fall in the naira means yields would have to rise further.
