The continued depreciation of the naira against the dollar, as seen in the FMDQ data, reflects the volatility in Nigeria’s foreign exchange market. The naira’s drop from ₦1561.76 to ₦1625.13 per dollar in just a day, after gaining N73.39 the previous day, underscores the instability driven by various economic factors.
One of these factors is the recent increase in the pump price of Premium Motor Spirit (PMS) by the Nigerian National Petroleum Company Limited (NNPCL). The recurring hikes in fuel prices strain the economy by raising transportation and production costs, which can lead to higher inflation. Additionally, the rising demand for dollars amid limited foreign reserves, alongside fluctuating oil prices, exacerbates the pressure on the naira.
This sharp decline adds more challenges to Nigeria’s economy, affecting businesses, consumers, and international transactions. If this trend continues without interventions, the economic strain could deepen, affecting the cost of goods and services nationwide.
Naira depreciation on Wednesday comes after the currency gained N73.39 against the dollar on Tuesday.
The depreciation of the naira to ₦1,895 per dollar from ₦1,780 in the black market, along with the drop in FX daily transaction turnover from $253.68 million to $170.60 million, reflects growing pressure on Nigeria’s foreign exchange reserves and overall economic challenges. The sharp decline in transaction turnover could indicate reduced liquidity in the FX market or lower supply of dollars.
Additionally, the Nigerian National Petroleum Company Limited (NNPCL) increasing fuel prices to ₦1,030 per litre from ₦898, after two consecutive hikes in September 2024, suggests that rising energy costs are exacerbating inflationary pressures in the country. This combination of currency depreciation and rising fuel prices is likely to affect the cost of living and could fuel further economic instability.
These developments are likely linked to Nigeria’s fiscal struggles, external borrowing needs, and the impact of global oil prices on its revenue.
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