According to analysts in a sub-Saharan Africa currency round-up report, despite a sharp rebound that made the local currency the world’s top performer, the value of the Nigerian naira remains 60% lower than it was a year ago.
The government depreciated the naira in June in an effort to standardize currency rates on foreign exchange markets. The poor regulatory monitoring and policy misnomers carried over by the apex bank caused the devaluation to go awry and the currency rate to plunge.
According to Bizwatch Nigeria, demand for foreign currency at the official window exceeded supply, causing the local currency uptrend to reverse last week and settle at N1169 per US dollar.
Likewise, when more US dollar transactions were anticipated, the parallel market’s exchange rate plummeted further US dollar sales to Bureau de Change operators holding sway in the informal currency market.
While the Central Bank of Nigeria (CBN) rebuff allegation of defending the naira with external reserves, the monetary authority has been selling forex to currency traders at parallel market below market rate.
The apex bank announced it sold $10,000 to 1508 Bureau de Change operators at N1101, while the authority also placed limit of 1.5% as FX spread. Since April 8, the CBN has not announced it sold forex to the currency traders in the parallel market.
“We anticipate a mixed performance for the major Sub-Saharan African (SSA) currencies in 2024”, FitchSolutions BMI Research said in a SSA currency round-up. In 2023, the majority of SSA currencies fell sharply against the US dollar, with many continuing to depreciate in the year-to-date.
The firm had flagged that the constrained dollar supply in Nigeria and investors’ worries about Ghana’s debt restructuring talks caused the naira and cedi to perform especially poorly.
BMI report stated that Nigerian naira will pare back some losses over the coming quarters, while the Kenyan shilling and Zambian kwacha will also perform fairly well in 2024 having seen significant strength in the year-to-date.
“We believe that the Nigerian naira will pare back most of the losses it incurred over Q1 2024, ending 2024 at N1,000”, the frim stated. The naira has strengthened markedly on the official market over the past month, having reached N1,150 from N1,625 per US dollar in mid-March.
“While the naira is the world’s strongest-performing currency in April thus far — having appreciated by 23.0% against the US dollar — it is still 60.0% weaker than it was a year ago”, the report said. The report hints that The Central Bank of Nigeria (CBN) reports that the rally is driven by stronger foreign exchange inflows following the cumulative 600 basis-point hike since February.
“We note that the strengthening of the naira coincides with a renewed decline in international reserves, which could be the result of the CBN intervening in the foreign exchange market to bolster the currency.
“We believe that the naira’s rally will continue in the short term. The CBN will likely continue raising interest rates to signal to international investors its commitment to inflation targeting and orthodox monetary policy, which should support foreign currency inflows”, BMI report stated.
