Nigeria’s currency, the naira, continued its downward spiral in the official market last month, depreciating by 0.38% to close at 461.50 per U.S. dollar on April 28th, according to data from the FMDQ Securities Exchange. This depreciation coincided with Nigeria’s headline inflation rate soaring to a 33-year high of 22.22% in April, up from 21.91% in March, driven by a 24.88% surge in food inflation, the National Bureau of Statistics (NBS) reported.
The naira has lost over 40% of its value against the dollar since the Central Bank of Nigeria (CBN) unified its multiple exchange rates in May 2022, allowing market forces to determine the currency’s value. This devaluation has significantly increased import costs for a country heavily reliant on imported goods, feeding into higher consumer prices. “The naira’s rapid depreciation has been a major driver of inflation in Nigeria,” said Omotola Johnson, an economist at FBNQuest Merchant Bank. “As the currency weakens, import prices rise, and this feeds through to higher consumer prices, particularly for food and other essential items.”
Nigeria’s unprecedented inflation is a case of multiple factors interacting, including the removal of fuel subsidies that tripled gas prices, supply constraints due to instability in food-producing areas, and the impact of the Russia-Ukraine war on wheat and fertilizer imports. Moreover, while falling oil and natural gas prices have reduced production costs globally, Nigerians are paying more at the pump due to the subsidy removal. The country’s heavy dependence on oil exports and imports has also made it vulnerable to external shocks.
To address the economic challenges, the World Bank recently approved a $3.4 billion loan to Nigeria, aimed at supporting reforms and bolstering foreign exchange reserves, which could provide temporary relief for the naira. However, experts suggest that comprehensive reforms are needed to diversify the economy, reduce import reliance, and promote exports to stabilize the currency and tame inflation in the long run.
Meanwhile, the U.S. Dollar Index (DXY) experienced volatility in April, fluctuating between 101 and 104 as markets reacted to the Federal Reserve’s hawkish stance and mixed economic data, ending the month around 103.50.
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