The Nigerian naira continues to face mounting pressure, plummeting further against the U.S. dollar in the foreign exchange market following another significant increase in fuel prices by the Nigerian National Petroleum Company Limited (NNPCL). This marks the latest in a series of fuel price hikes in 2024, exacerbating the currency’s already fragile position amid ongoing economic challenges.
According to data from FMDQ, the naira closed at an alarming N1,625.13 per dollar on Wednesday, down from N1,561.76 per dollar just the day before. This steep drop comes in the wake of a brief rally, where the naira had appreciated by N73.39 against the dollar on Tuesday. However, the latest increase in the pump price of Premium Motor Spirit (PMS) has reversed those gains, plunging the currency to new lows.
Impact of Rising Fuel Prices on Exchange Rates
The latest price hike, which saw petrol prices soar to N1,030 per litre in Abuja, has once again stoked inflationary pressures and heightened volatility in Nigeria’s foreign exchange market. This is the second consecutive increase in September 2024, as NNPCL struggles to adjust prices in response to global oil market trends and supply chain disruptions.
The knock-on effect of these fuel price adjustments on the naira is becoming more apparent with each increase. As the cost of fuel rises, businesses and consumers face escalating expenses, which in turn drives demand for foreign currency to cover import costs and other foreign transactions. The result is a weakening naira, which has struggled to find stability in recent months.
The currency’s performance in the parallel market mirrors this downward trend. On Wednesday, the naira fell further, reaching N1,895 per dollar compared to N1,780 the previous day, as both businesses and individuals scrambled to secure foreign currency at escalating rates.
Foreign Exchange Turnover Declines
In addition to the naira’s weakening, the foreign exchange market has also seen a notable drop in turnover. Daily transaction volumes fell to $170.60 million on Wednesday, down from $253.68 million on Tuesday. This sharp decline reflects growing uncertainty in the market, as rising fuel prices and inflation continue to erode confidence in the naira’s value.
Industry insiders have expressed concerns that the persistent fuel price increases will continue to put pressure on the naira. One insider, who spoke on condition of anonymity, stated, “The back-to-back price hikes will likely add more pressure on the already volatile exchange rate. Each increase pushes up the cost of living and operating expenses for businesses, which ultimately affects the demand for dollars.”
Analysts Warn of Long-Term Economic Consequences
Economic analysts are also sounding alarms over the broader impact of NNPCL’s fuel price adjustments on the Nigerian economy. A market analyst noted, “We’re seeing the direct impact of NNPCL’s fuel price adjustments on the naira. With each increase, businesses and consumers face higher costs, which in turn affects demand for foreign exchange.”
The analyst went on to explain that the interconnected nature of fuel prices, inflation, and exchange rates creates a vicious cycle that is difficult to break. As fuel prices rise, the cost of goods and services follows suit, driving up inflation and prompting increased demand for foreign currency to meet rising import costs. In turn, the naira weakens, making it more expensive to import essential goods, including fuel.
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