In a surprising turn of events, the Nigerian naira has experienced a significant depreciation of 26.36% against the US dollar at the official Investor and Exporter window of the foreign exchange market. This comes just hours after the Central Bank of Nigeria (CBN) announced the clearance of $2 billion as part of its backlog obligations.
On Monday, the CBN revealed the disbursement of $2 billion from its forward contract obligations backlog, aiming to address the current pressure on the country’s exchange rate. However, data from the FMDQ Securities Exchange shows that the naira, which closed trading at N856.57/$ on Monday, has since traded above N1000 against the dollar. It closed at N1082.32/$ on Wednesday, marking a 26.36% decline.
The CBN’s Acting Director of Corporate Communications, Hakama Sidi Alia, stated that the payments were part of the ongoing efforts to settle valid forward transactions and alleviate the pressure on the exchange rate. The initiative aims to boost the naira against other major world currencies and enhance investor confidence in the Nigerian economy.
Despite these efforts and renewed attempts to enhance liquidity in the foreign exchange market, the naira’s value has continued to decline. The Minister of Finance and Coordinating Minister of Economy, Wale Edun, disclosed at the end of 2023 that the Federal Government had received a $2.25 billion foreign exchange support facility from the African Import-Export Bank. The first tranche of the $3.3 billion facility was intended to address FX shortages.
Chief Executive Officer of Economic Associates, Dr. Ayo Teriba, attributed the naira’s volatility to inadequate foreign exchange supply, low and declining reserves, and the CBN being in arrears on some obligations. While efforts to boost FX supply through investments are underway, results are yet to materialize.
President of the Nigerian Economic Society, Prof. Adeola Adenikinju, expressed optimism that the naira would be more stable in 2024. He cited factors such as the coming onstream of local refineries, reduced demand for forex, increased government revenue, and boosted oil production as potential stabilizing elements.
However, Financial Derivatives Company predicts continued pressure on the naira in 2024, stating that the CBN has limited firepower to defend the currency. The document titled ‘2024: The Hard Road Ahead’ suggests a possible fall towards N1,350/$ before a potential rebound in Q2.