Even though the Naira has seen two significant devaluations in less than eight months, the growing demand for foreign money is detrimental to FX convergence. The macroeconomic indices in Nigeria have gotten worse due to the ongoing economic change.
According to some analysts, for exchange rates to attain FX convergence, one of two things must happen: either the official rate becomes worse or the Naira’s exchange rate gains significantly on the parallel market.
In light of this, economists predict that the naira will continue to weaken throughout the first half of 2024. Yesterday, the pressure on the naira decreased on one end and increased on the other. While the parallel market rate reached N1802, the official exchange rate slightly increased relative to the US dollar.
The naira appreciated by 0.56% against the US Dollar in the Nigeria autonomous foreign exchange market window, closing at a rate of ₦1,542.58, FMDQ data showed. The gain is seen as unimpressive when considering the range at which the local currency has been trading in the past weeks as a result of demand pressures in the forex market.
To achieve currency stability, the apex bank continues to deploy regulatory might to stop the naira from free-falling – closing all loopholes to boost forex liquidity in the market. Unfortunately, the US dollar and other foreign currency scarcity have been a downside to achieving results. Import appetite remains strong despite devaluation of the naira.
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The central bank intervened at the official window with foreign currency injection, but the level of FX demand was higher than the combined market supply. In the parallel market, the Naira weakened against the US dollar to close at N1,802 per US dollar. This widened the gap between official and unofficial exchange rates to N260.
Analysts told MarketForces Africa that there is a level of currency speculation that the naira can accommodate amidst willing buyers’ and willing sellers’ FX model. They said a large FX gap could rubbish CBN FX reforms and efforts to keep the naira strong. Pressures in the FX market are expected to be mildly relieved through efforts by the CBN to clear backlogs and improve liquidity, WSTC Securities Limited said in a report.
In its note, WSTC Securities Limited said FX market is expected to remain pressured particularly in H1 2024. However, as the monetary authorities intensify efforts to address existing backlogs with proceeds from foreign borrowings, and implement other policies to enhance FX liquidity, analysts said they cautiously anticipate restoring investors’ confidence in the Nigerian economy.
