In a stark turn of events, the Nigerian naira has experienced a significant devaluation, plunging to ₦1082 against the US dollar, despite the Central Bank of Nigeria’s (CBN) recent repayment of $2 billion in backlog obligations.
The currency’s value depreciated by 26.36% at the official Investor and Exporter window of the foreign exchange market, raising concerns about the sustainability of Nigeria’s exchange rate.
The CBN had recently announced the clearance of $2 billion as part of its outstanding forward contract obligations, emphasizing its commitment to settling valid forward transactions to alleviate pressure on the country’s exchange rate.
Yet, the naira’s value has exhibited persistent volatility, undermining confidence in the currency’s stability against major world currencies.
Data from the FMDQ Securities Exchange revealed that, after closing trading at ₦856.57/$ on Monday, the naira surpassed the ₦1000 mark, reaching ₦1082.32/$ by Wednesday. This represents a 26.36% decline and a modest 0.66% increase from Tuesday’s closing rate of ₦1089.51/$.
Notably, this is the fifth instance of the naira closing above ₦1000 on the official window since the removal of the rate cap on the national currency by the CBN.
Despite renewed efforts to enhance liquidity in the foreign exchange market, the naira’s depreciation persists. The Minister of Finance and Coordinating Minister of Economy, Wale Edun, had earlier disclosed a $2.25 billion foreign exchange support facility from the African Import-Export Bank at the end of 2023.
However, market experts attribute the naira’s decline to insufficient foreign exchange supply, dwindling reserves, and arrears on CBN obligations.
Dr Ayo Teriba, CEO of Economic Associates, highlighted the urgency of addressing foreign exchange shortages and suggested that openness to investors could facilitate increased forex supply. He emphasized the need for transparency and attracting investments to bolster reserves and meet the demand in the FX market.
Prof. Adeola Adenikinju, President of the Nigerian Economic Society, expressed optimism about a more stable naira in 2024, citing factors such as local refineries coming online, improved revenue generation without relying on Ways and Means, and increased oil production.
However, the Financial Derivatives Company cautioned that the naira could face continued pressure in 2024, projecting a potential fall towards ₦1,350/$ before a recovery in the second quarter. The road ahead for the naira appears challenging, with uncertainties regarding its resilience and the impact of economic variables on its value.
