Nigeria's Naira resumes decline in parallel market after days of stability

Nigeria’s currency plunged to a record in the parallel market after days of stability, highlighting the need for more steps from the central bank to stem the decline.

The naira slumped 1.8% to 1,645 a dollar on Friday in street trading, according to Abubakar Mohammed, chief executive of Forward Marketing Bureau de Change Ltd., which tracks the data in Lagos. That widened the spread between it and the official rate to 10% after measures to boost dollar liquidity had helped narrow the gap to 2%.

The Central Bank of Nigeria has allowed the naira to weaken 70% in the past year and taken several steps since January to boost market liquidity. But the moves haven’t instilled confidence among investors that the currency will stabilize anytime soon. The focus will now be on the monetray policy committee, which meets later this month to decide on interest rates.

While the central bank took “an important step, it is evidently not enough to stem the naira’s decline,” Kyle Chapman, an analyst at Ballinger & Co., said in emailed note to clients. “Structural change to rein in inflation and to boost investment and export capital flows is what is needed,” to support the currency, he said.

Nigeria’s inflation rate climbed to a near 28-year high in January at 29.9% — exceeding the yield on local debt — and making it difficult for the central bank to mop up excess naira liquidity. Inflation adds to pressure on policymakers to announce a significant increase the benchmark interest rate, currently at 18.75%.