Exchange Rate: CBN Expects Pressure on Naira to Subside in Q3-2023
Godwin Emefiele, CBN Governor

Exchange Rate: CBN Expects Pressure on Naira to Subside in Q3-2023

The Central Bank of Nigeria (CBN) expects the renewed pressure in the foreign exchange (FX) market and the accompanied depreciation of the naira to subside from the third quarter of 2023, according to Nigeria’s finance ministry’s medium-term expenditure and fiscal strategy paper.

Naira has been on the decline across the foreign exchange markets due to higher demand and lower supply that dislocate the equilibrium position of the currency spot pricing.

At the official window, the naira traded above N430 to a United States (US) dollar after a large currency depreciation not due to outright repricing by the monetary authority – market forces find a weaker value for the exchange rate.

According to the report, Nigeria continues to be exposed to risk aversion in the global capital markets. It stated further that the development will put further pressure on foreign exchange markets, noting that foreign investors are yet to return to Nigeria’S market.

The finance ministry report affirmed the stock market position that local investors, both institutional and retail have become the dominant force driving transactions in the local bourse – a pattern spotted since the beginning of the year.

In the fixed income market, CBN premium of spot pricing has been used to attract foreign interest into open market operations (OMO Bills); yet inflows have been minimal.


The Nigerian economy has sustained recovery from the previous recession triggered by covid-19 outbreak for the fifth consecutive quarter, growing by 3.11% in the first three months of 2022.

The report agrees that Nigerians, like many other economies in the developed, emerging and frontier markets, face lingering covid-19 pandemic effects. The pressure has also been fuelled by higher global food prices and fuel prices amidst the Russia-Ukraine war.

Rising oil prices have turned out to be another downside for the Nigerian government, resulting in higher subsidy payments. Landing costs of crude has persistently outpaced regulated fuel pump price.

While pump price has increased beyond N165 per litre, the Nigerian government has failed to officially tell citizens that fuel price has been adjusted. The pump price of premium motor spirit or petrol has been adjusted to N175 at filling stations by major marketers, while some are selling above this level.

Other hydrocarbon prices have seen their prices increase, including diesel, Jet A1 and kerosene. Airlines operators have also reacted to rising costs of maintenance and purchase of Jet A1 with an increase in local flight tickets.

Analysts said the development, a fresh market dynamics, will drive Nigeria’s headline inflation rate upward in the second half of 2022. In June, Nigeria’s inflation rate worsened to five years high at 18.60% from 17.71% in May, according to the National Bureau of Statistics.

The federal government is now projecting a higher inflation rate for the fiscal year 2023. The policy authority said inflation will average 17.16%, up from the revised average of 16.11% for the current year.

Nigeria’s worsening inflation rate comes in term with the global trend as the United States experienced its worst inflation level at 9.10%, a level seen more than 41 years ago. READ: Nigerian Economy Scores ‘Highs’ and ‘Lows’ in Fresh Rating

The galloping inflationary conditions have forced central bankers across the world to turn hawkish with monetary policy rates. The Central Bank of Nigeria has also joined the league of economies willing to fight red hot inflation with interest rate hikes.

“Upward pressures on prices is expected to be driven by the current and lag effects of global price surge due to the Russia-Ukraine war, domestic insecurity, rising costs of imports, exchange rate depreciation as well as other supply-side constraints”, the report said.

Recall that in less than three months, Nigeria has raised its benchmark interest rate twice. In May, after 2 years of dovish stance, the monetary policy committee of the CBN increased the interest rate by 150 basis points, from 11.5% to 13%.

Just in July, another 100 basis points interest rate hike was booked by the CBN, thus taking the monetary policy rate to 14% to make the Nigerian economy competitive for hot monies.

The fiscal strategy report said up till the second quarter of 2022, exchange rate, inflation and gross domestic growth rate varied adversely from targets. The nation’s external reserves have steadied at about $40 billion in the first half of 2022.

This was driven by a $1.25 billion Eurobond raised by Nigeria’s Debt Management Office (DMO) in the first quarter of the year while oil inflows contributions have been unimpressive.

In the first four months of the year, the finance ministry hinted in the report that the average crude oil price beat the budgeted benchmark price of $73 used to prepare a spending plan for the year.

However, the report said higher oil prices record in the period was offset by the Nigerian government’s inability to produce volume allocated by oil group and allies- OPEC+. 

With an expectation that the crude oil market will be stable, Nigeria is estimated to spend N6.72 trillion to subsidise petrol prices to be used in the country in 2023 if the Nigerian government will maintain payment of subsidy. # Exchange Rate: Nigeria Expects Pressure on Naira to Subside in Q3-2023

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