Lower naira will not offset Nigerian recession risks

Subject

Pressured naira.

Significance

The naira has depreciated by approximately 11% on the parallel market since the Saudi-Russia oil price war began, which dashed hopes of OPEC+ supply curbs to stem the price rout amid the escalating COVID-19 pandemic. This has hampered the Central Bank of Nigeria’s (CBN) ability to support the multiple exchange rate regime, prompting a sharp devaluation of the official exchange rate.

Impacts

• The naira’s devaluation will accelerate rising inflationary pressures from the closure of Nigeria’s land borders last year.
• The CBN could impose damaging capital controls once more if the exchange rate falls further towards 500:1.
• With low funds in the oil savings fund, the authorities will likely limit their intervention against COVID-19 to soft loans from the CBN.