This week, the naira’s value in the parallel market dropped by 15.79 percent, ending trading at N1,100/$.
According to The Punch, this was a 15.79 percent drop from the N950/$ it closed trading last Friday. Following the announcement that the Central Bank of Nigeria has started to reduce its foreign exchange backlogs, the naira strengthened versus the dollar last week.
The naira traded for N1,170 at one point throughout the week before gaining N220 to end the week at N950/$. But this week, in both the official and parallel markets, the value of the naira has sharply declined in relation to the US dollar.
A currency trader, Awolu, said that it would cost N1,100 if they wanted to buy it. If you would like to sell, it is N1,090. Another trader named Kadir said, “If you want to sell, it’s N1050.” and you can buy for N1,100.
The naira was weakening sharply due to the acts of speculators, according to the President of the Association of Bureaux De Change Operators of Nigeria, Aminu Gwadabe.
Nonetheless, the naira ended the week strongly on the official Investor & Exporter FX market, strengthening by 3.57 percent to end the week at N780.14/$ after beginning the week at N809.02 to the dollar on Monday afternoon. Additionally, according to data from the FMDQ OTC Securities Exchange, the value of the naira increased by 21.73 on Friday to N780.14/$ after dropping to N996.75/$ on Thursday.
According to Economist Intelligence, the naira is predicted to close 2023 at N810/$ on the official market. After floating the naira in June, the CBN has now returned to controlling the exchange rate by restricting access to foreign-exchange sales for banks and other dealers that quote hard currency outside of a recommended rate, according to a national report published in November by the EIU.
It made clear that the naira will continue to be under pressure from this unfavourable monetary policy. The statement read, “The CBN lacks the firepower to adequately supply the market or clear a backlog of foreign exchange orders, valued at over $6 billion, which will keep foreign investors uneasy,” in response to the CBN’s attempt to reduce its backlog.
“Although official foreign reserves are stated to be US$33 billion, up to one-third of the holdings are burdened by debt or derivative agreements. Long lead times at the NFEM are likely because access limitations will continue to support the official exchange rate in the short to medium term.”
It further stated that the value of the naira will be N822.9/$ at the end of 2024, N1,142.5/$ in 2025, and N1,262.1/$ in 2028. It declared that, given the apex’s inexperience managing monetary policy under a float, it does not anticipate a long-term commitment to a market-led naira.
It further stated that the exchange-rate regime will become unstable and lead to frequent devaluations if high inflation and a persistent spread with the parallel market continue.
While the government’s decision to lift import restrictions on 43 imported goods is encouraging for a naira driven by the market, the research and analysis division of The Economist Group also pointed out that there will be more demand in the formal market due to a restricted supply.
Nonetheless, it contended, “Other factors weakening the naira, like extremely negative short-term real interest rates, necessitate an orthodox monetary policy that the authorities have not shown enough willingness to pursue. As a result, we do not anticipate a currency float to be successful between 2024 and 2028, while it appears likely that the fuel subsidy would stop in late 2024 when the Dangote refinery is equipped to replace imports.