The naira lost 15.79 percent of its value on the parallel market this week to close trading at N1,100/$.
This was a 15.79 percent depreciation from the N950/$ it closed trading on Friday last week. Last week, the naira firmed up against the dollar after news broke that the Central Bank of Nigeria had begun to clear its FX backlogs.
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The naira gained N220 to close the week at N950/$ after trading for N1,170 at some point in the week. However, this week, the naira has depreciated steeply against the dollar in both the parallel and official trading markets.
A currency trader who spoke to The Punch Newspaper said, “It is N1,100 if you want to buy. It is N1,090 if you want to sell.” Kadir, another trader, added, “It is N1050 if you want to sell. It is N1,100 if you want to buy.”
According to the President of the Association of Bureaux De Change Operators of Nigeria, Aminu Gwadabe, the naira was depreciating steeply because of the actions of speculators.
He earlier told The Punch, “Speculators are always looking at elements of sustainability. Once they sense that the injection is not continuous, they begin to react. They begin to react. It is the reaction of the market we are witnessing. Also, there is resistance. There are people who bought at a higher price that this does not favour. People are not willing to take further losses.”
However, the naira closed the week strong on the official Investor & Exporter forex window, appreciating by 3.57 percent to close the week at N780.14/$ after opening at N809.02 to the dollar on Monday. Also, the naira appreciated by 21.73 on Friday to N780.14/$ after falling to N996.75/$ on Thursday, according to data from the FMDQ OTC Securities Exchange.
Meanwhile, the naira is expected to close 2023 at N810 on the official market, Economist Intelligence has disclosed. In a country report released in November, the EIU stated that after floating the naira in June, the CBN has since reverted to guiding the exchange rate by limiting access to foreign exchange sales for banks and other dealers that quote hard currency outside a preferred rate.
It highlighted that this unsupportive monetary policy would continue to put the naira under pressure. Commenting on the CBN’s attempt to clear its backlog, it said, “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 unnerved.
“Official foreign reserves are reported at US$33 billion, but up to one-third of the assets are encumbered, tied up in derivative contracts or loans. In the short to medium term, the official exchange rate will continue to be propped up by access restrictions, implying long lead times at the NFEM.”
It further declared that the naira would end in 2024 at N822.9/$, 2025 at N1,142.5/$, and 2028 at N1,262.1/$. It stated that it does not expect lasting commitment to a market-led naira, as the apex lacks experience conducting monetary policy under a float.
It added that high inflation and a continued spread of the parallel market will leave the exchange-rate regime unstable and result in periodic devaluations.
The research and analysis division of the Economist Group also highlighted that the decision of the government to scrap import controls on 43 imported items—while being positive for a market-led naira—will generate added demand in the formal market against limited supply.
It argued, “However, other factors undermining the naira, such as deeply negative short-term real interest rates, require an orthodox monetary policy that the authorities have not demonstrated enough appetite for. We therefore do not expect a currency float to succeed over 2024–28, although it seems likely that the fuel subsidy will end when the Dangote refinery is able to replace imports, from late 2024 onwards.”