Naira Faces Continued Pressure as Oil Prices Drop 17%, Citi Predicts Further Decline to 1,800 Per Dollar by 2025
Thank you for reading this post, don't forget to subscribe!Nigeria’s naira fell to a record low of 1,667 per dollar last week before recovering to 1,542 by Monday, driven by reduced foreign capital inflows and a significant drop in oil prices. Global crude prices plunged 17% last quarter and are currently trading at $71.05 per barrel, with Citigroup forecasting a further decline to $65 by the first quarter of next year.
David Cowan, Citigroup Inc.’s chief Africa economist, believes that while the naira remains under pressure, structural reforms may help Nigeria manage this economic downturn better than in the past. “We see a clear story that structural changes are starting to play out across the economy,” Cowan said in a note to clients.
Nigeria, Africa’s largest oil producer, relies heavily on oil exports for foreign currency but also spends substantial amounts importing refined petroleum. In 2022, fuel subsidies alone cost the government $10 billion. However, this dynamic is expected to change with the recent launch of billionaire Aliko Dangote’s refinery near Lagos, which has started producing gasoline. Starting Tuesday, Nigeria will sell crude to the refinery in naira, potentially easing foreign-exchange strains.
Cowan also highlighted the possibility that the Central Bank of Nigeria (CBN) may allow further naira depreciation, especially if oil prices continue to fall. Under Governor Olayemi Cardossa, the CBN might maintain a “willing seller-willing buyer” approach, despite political pressures to prevent further weakening. Historically, falling oil prices led the CBN to restrict naira depreciation, resulting in foreign-exchange shortages.
Inflation trends will also influence the naira’s performance. Cowan expects inflation to gradually decline by 2025, which could ease demand for foreign currency and support the naira. However, this will depend on whether the central bank can balance currency stability with inflation control while gradually reducing interest rates.
Citi forecasts that the naira may weaken further, reaching 1,800 per dollar next year, but Cowan remains optimistic that this decline can be contained. He emphasized the importance of tighter monetary policies and positive real interest rates in stabilizing the naira, particularly if Nigeria can increase oil production and restore confidence in the currency.
