Citi Sees Reforms Easing Impact of Oil Price Drop on Nigeria's Naira
TLDR
- Nigeria's naira faces pressure due to oil price decline, hitting a record low but showing some recovery.
- Reduced capital inflows and lower oil prices driving the naira decline, with further expected drop in oil prices.
- Structural reforms and flexible currency adjustments by the Central Bank of Nigeria may help Nigeria withstand economic challenges.
Nigeria’s naira remains under pressure following a decline in oil prices, though structural reforms could provide resilience, according to David Cowan, Citigroup Inc.’s chief Africa economist. The naira hit a record low of 1,667 per dollar last week before recovering to 1,542 per dollar on Monday.
The decline has been driven by reduced foreign capital inflows and softer oil prices, with crude prices down 17% last quarter and currently trading at $71.05 per barrel. Citi expects prices to drop further to $65 by early next year.
Cowan noted that while challenges remain, ongoing reforms may help Nigeria withstand the downturn better than in the past, especially if the Central Bank of Nigeria (CBN) allows for flexible currency adjustments.
Key Takeaways
Nigeria, Africa’s largest oil producer, heavily relies on crude exports for foreign currency. However, the launch of the Dangote refinery, which will buy crude in naira, could ease foreign exchange strains. Investors are closely watching whether the CBN will allow further naira depreciation as oil prices continue to fall.
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