Despite a recent dip in the Nigerian Naira against the US dollar, JP Morgan Chase asserts the decline is “reasonable” when compared to other frontier and emerging market currencies. This assessment comes as global markets grapple with the ripple effects of international trade tensions, particularly those stemming from US tariff policies.
The Naira experienced a four-month low at the beginning of the week, prompting the Central Bank of Nigeria (CBN) to intervene with approximately $550 million in dollar sales. While the Naira initially depreciated by roughly 3 percent, it later saw a slight appreciation, closing at N1,611.55 against the dollar, up from N1,612.23 the previous day. Street market data indicated rates around N1,565 per dollar.
“When compared to its peers as well as more liquid markets, NGN’s -3.6% move against USD over the past week has been reasonable, in our view,” stated JP Morgan in a note to clients. The investment bank commended the CBN’s “proactive” intervention, highlighting the necessity of dollar sales to mitigate convertibility risks and prevent a disorderly market surge.
The CBN’s actions, according to JP Morgan, are crucial given the potential for accelerated foreign portfolio outflows, which they estimate to be at least $10 billion. “The central bank has sold around USS550mn to the market over the last week (vs USSI.0bn for the whole of March), a trend which we expect will continue,” JP Morgan stated.
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The Naira’s decline is not isolated. Other emerging market currencies, including the South African Rand, the Chinese Yuan, and the Indian Rupee, have also faced significant pressure. Bloomberg reported the South African Rand hit a record low of 19.9328 per dollar. The Chinese Yuan fell to its lowest level since December 2007, closing at 7.34 per dollar. The Indian Rupee weakened to a three-week low, ending at 86.68 per dollar.
“I think the steep depreciation of the naira is in line with other currencies of similar economies. If we were falling beyond where other markets have, then maybe a concern will exist,” said a market source. The source also emphasized the market’s liquidity, allowing foreign portfolio investors to exit at prevailing prices.
This recent volatility highlights the interconnectedness of global markets and the challenges faced by emerging economies in navigating international financial pressures. The CBN’s strategic interventions and the relative stability of the Naira, as assessed by JP Morgan, are crucial for maintaining investor confidence and economic stability in Nigeria.
