Global trade war: Naira value depreciates amid forex outflows

THE uncertainty caused by the ongoing tariff war between the United States and some countries have triggered the exit of foreign exchange outflow from Nigeria, prompting a two-week depreciation of the naira.

This prompted the Central Bank of Nigeria, CBN, to intervene in the forex market last week, selling up to $500 million, to boost supply.

However, the naira still depreciated week-on-week, W/W by N55 to N1,600 per dollar in the parallel market, the lowest in five weeks since February 5.

Also, in the official market, the naira depreciated, W/W by N6 to N1,548 per dollar. Global uncertainty The global economy has been gripped with uncertainty, following tariff war among the United States, Canada, Mexico, China and the European Union.

The situation escalated last week with the commencement of a 25 per cent tariff on all metal imports into the US, with other countries, including the European Commission, announcing counter-measures. Fears that the tariff war could lead to higher inflation and contraction in the global economy (recession), triggered uncertainty in the investment community, causing significant losses in global stock markets as investors moved their assets to less riskier options.

Reflecting the impact of the escalating trade tensions on investors’ mood, MSCI World index, which tracks performance of 1,500 stocks from 23 developed countries fell last week by 2.1% w/w, while the Nigeria stock market (NGX Exchange) also fell for the second consecutive week by 0.5 per cent. Forex outflows Financial Vanguard investigation showed that the apprehension caused by the global uncertainty prompted few foreign portfolio investors to repatriate their funds out of Nigeria.

“So, they sold the assets they invested in (bonds, treasury bills and equities), and went to the foreign exchange window to buy the dollars,” said a senior banking executive who spoke to Vanguard on condition of anonymity. “The sustained buying pressure from them led to locals who had been price sensitive for the past few months, waiting for the naira to appreciate, to jump into the market to also start buying the greenback.

“Meanwhile, the fear that the naira was depreciating led to panic buying thus compounding the demand pressure in the forex market,” he said Financial Vanguard analysis of NGX data showed that this trend may have commenced in January. According to NGX data, foreign investment outflow from the stock market exceeded inflow by 78 per cent in January.

The market recorded N45.85 billion foreign outflow, against the foreign inflow, which stood at N25.66 billion. While the foreign outflow increased by 13.2% to N45.85 billion in January 2025 from N40.49.billion in December 2024, foreign inflow decreased marginally by 2.3% in January 2025 from N26.26 billion in December 2024. Naira depreciation Financial Vanguard investigation revealed that the upward trend in foreign exchange outflow resulted in dollar scarcity which triggered steady depreciation of the naira in both segments of the foreign exchange market, and reversed the gains made in the first two months.

Consequently, in two weeks from February 26 to last Friday, March 14, the naira depreciated by 7.4 per cent in the parallel market to N1,600 per dollar from N1,490. Similarly, the naira depreciated in the official market during these two weeks by 3.3 per cent to N1,5480 per dollar from N1,499.