Nigeria’s currency, the naira, is staging a recovery after hitting record lows earlier this year, thanks to strategic interventions by the central bank, which includes interest rate adjustments and direct dollar sales to foreign exchange bureaus....CONTINUE READING
According to trading data from the Lagos-based FMDQ exchange, the naira closed at 1,278 per dollar on April 2, a significant improvement from over 1,500 in February.
Investment management firm Cardinal Stone reported last week that the naira had strengthened by 11.4% in official markets since March, positioning it as one of Africa’s top-performing currencies. The firm also noted an increase in foreign inflows into Nigeria, rising to $2.1 billion this year compared to $1.6 billion in 2023.
The currency’s recovery follows a period of depreciation triggered by economic reforms introduced by President Bola Tinubu’s administration, including the removal of a fixed currency peg and the elimination of multiple exchange rates. This shift allowed the naira’s value to be determined by market forces.
In response to inflationary pressures, exacerbated by foreign exchange challenges due to dollar shortages from the oil industry, the Central Bank of Nigeria (CBN) devalued the naira twice in the past year, most recently in January. Additionally, the CBN raised the benchmark interest rate by 600 basis points to 24.75%.
To address dollar scarcity, the CBN reinstated its policy of selling fixed-price dollars to licensed bureau de change traders and increased dollar sales to deposit banks while revising their operational guidelines. International banks operating in Nigeria are now required to maintain a capital base of 500 billion naira ($353 million).
The central bank’s interventions, coupled with reduced demand for dollars outside official channels, have narrowed the gap between official and parallel market exchange rates, signaling increased stability in the foreign exchange market.
Analysts from Financial Derivatives and Goldman Sachs express optimism about Nigeria’s central bank, citing improved confidence due to the CBN’s settlement of a $7 billion backlog in forward commitments. Goldman Sachs predicts a dollar value of 1,200 naira within the next 12 months, with Cardinal Stone foreseeing further enhancements in foreign exchange reserves.
Inflation spikes stubbornly
Meanwhile Nigeria is bracing for a staggering peak in inflation, with projections indicating a surge to 32.4 percent in March 2024, as forecasted by the Financial Derivative Company (FDC) based in Lagos.
Thank you for reading this post, don’t forget to subscribe!
The spike, hitting a multi-decade high, is attributed to disruptions in the food supply chain and the enduring effects of fuel subsidy reduction, according to FDC.
They also point to what they term as “greedification” and corporate exploitation as contributing factors.
Bismarck Rewane, CEO of FDC, highlighted these concerns during a presentation at the Lagos Business School, noting that while other countries like South Africa, the United Kingdom, and India are experiencing a slowdown in inflation, Nigeria’s prices may rise by 0.7 percentage points compared to February.
The Consumer Price Index, which surged to 31.7 percent in February, is expected to continue its upward trend until later in the year.
