The difference between supply and demand for foreign exchange caused the local currency to lose 4.2% of its value versus the US dollar, ending at N1,534.39 at the Nigerian Autonomous Foreign Exchange Market. In the parallel market, the Naira lost 1.22% of its value versus the US dollar and ended at N1,488.
According to statistics from the London Stock Exchange Group, Nigeria’s naira dropped below prices published on the unofficial parallel market during the intraday trading session, reaching a record low of 1,550 per US dollar.
A persistent lack of foreign exchange in the markets caused the exchange rate at the official window to deteriorate to the rate quote at the parallel market.
With the modification of FMDQ FX rate pricing, the central bank has updated the process by which it determines the official exchange rate, taking the currency closer to the black market rate.
The move was widely seen as part of market-friendly reforms being introduced by President Bola Tinubu.
The CBN has intensified efforts to rejuvenate the monetary policy mechanism, gradually transiting Nigeria to a more traditional monetary framework.
These efforts, which are largely biased towards improving FX liquidity in the market and restoring foreign investors’ confidence, have implications for the fixed-income market.
Already, the CBN has cleared most FX backlogs, leaving a balance of $2.2 billion, which it has promised to clear imminently. There was also an agreement to domicile a significant portion of the revenue of the National Petroleum Company Limited (NNPCL) with the CBN.
To boost FX liquidity and promote a market-determined exchange rate, the CBN also removed the cap on the spread of interbank foreign exchange transactions rate and discontinued any restrictions on the sale of interbank proceeds.
In an update, Agusto Ratings said Nigeria’s future economic growth is hinged on the continued implementation of macro-fiscal and inclusive structural reforms.
“We believe that reforms aimed at tackling insecurity and incentivising investment are particularly crucial in the near term”.
According to the firm, the recent upgrade of Nigeria’s economic outlook from stable to positive while still maintaining a junk credit rating was premised on the possible reversal in the deterioration of Nigeria’s fiscal and external positions on the back of reform efforts, citing the need to contain inflation and the government’s borrowing costs.
Agusto stated that this alludes to the need for a coordinated monetary and fiscal policy response, and expressed a belief that a strategic balance between economic policies and external factors will determine the trajectory of the Nigerian economy in 2024.
“The good news is that the Nigerian economy is unlikely to be as poorly managed in the next four years as it was in the previous eight”, the firm said.
With limited dollar sources in the short term, the central bank will continue to struggle to meet its foreign exchange needs, Deloitte said in a note.
It added that other sources of foreign exchange supply such as nonoil exports, external financing, and diaspora remittances are unlikely to satisfy demand in the short run. Efforts to clean up Nigeria’s ex-president, Muhammadu Buhari, economic policies mess have come under pressure as the naira continues to lose strength across FX Market.
