The Nigerian naira is grappling with mounting foreign exchange pressure as some traders have started quoting a bid price of N900 per dollar in an effort to meet lure sellers to sell to them.
The Economist Intelligence Unit (EIU) has painted a pessimistic picture of the situation, predicting that the local currency may hit N1000 against the United States Dollar if nothing is done to arrest the situation.
According to the latest report released by EIU, the average exchange rate is projected to be N815 to $1 in 2024.
However, this rate is expected to slide to N1,018 per $1 by the end of 2027, with a spread of 10-15 percent against the black-market rate over the same period.
The naira’s exchange rate has already experienced turbulence in recent times. On July 14, 2023, it crossed the 800/$ mark at the Investors’ and Exporters’ (I&E) forex window, Nigeria’s official foreign exchange market.
Simultaneously, at the parallel market, commonly referred to as the black market, the dollar traded around N870. These developments have further exacerbated the uncertainty surrounding the naira’s future value.
Currency traders at the FX auction on Friday witnessed bids as high as N799.50/$, indicating strong demand for the US dollar. This surpassed the rates of N869/$ on Thursday and N845/$1 on Wednesday. Conversely, there were also lower bids recorded at N465/$, indicating the unpredictable fluctuations in demand and supply.
The situation has prompted some customers, like one from a tier-one bank with a strong regional presence, to offer bids at N800/$. To their dismay, these bids were rejected on July 27, and they were advised by their bank to bid even higher at N900/$. Such drastic measures have left some customers frustrated, claiming that these moves are contributing to the soaring dollar rates.
Experts suggest that stabilizing the exchange rate will be challenging until there is enough supply to meet the FX demand. Yemi Kale, Partner and Chief Economist at KPMG Nigeria, pointed out that the current demand stems from both actual needs and speculative activities. He highlighted that while oil sales play a crucial role in the FX inflow, other sources like foreign portfolio investment, foreign direct investment, remittances, and export-oriented enterprises are equally vital.
FX inflow into Nigeria’s economy declined by 3 percent quarter-on-quarter (q/q) and 7 percent year-on-year, amounting to $17.2 billion in the first quarter of 2023, according to data from the Central Bank of Nigeria (CBN) compiled by FBN Quest.
The decrease in inflow is attributed to structural issues and restrictive FX policies that limited the free flow of foreign currency out of the country and deterred foreign portfolio investors from injecting capital into the Nigerian market.
As the nation grapples with these challenges, experts emphasize that restoring confidence in the economy and encouraging steady inflow of foreign currency are paramount to avoid further currency depreciation. Until then, the fate of the naira remains uncertain, and Nigeria must navigate a treacherous foreign exchange landscape.
