Naira Falls amidst Expected Post-Election Devaluation
The Nigerian local currency, the naira, fell against the United States (US) dollar amidst rising demand for foreign exchanges in the local economy. The Naira was exchanged at N461.50 to the US dollar at the Investors and Exporters window.
The spot FX rate at the official window represented a decrease of 0.05 per cent when compared with the N461.25 it exchanged after the close of business on Feb. 18. In the parallel market, the exchange rate also worsened to N770 despite a scarcity of new naira notes in the circulation.
Now above N300 per dollar, the premiums in the parallel market and the Bureau de Change (BDCs) exchange rates have stayed elevated and widened further following the authorities’ decision to discontinue FX supply to the BDCs in July 2021.
A slew of analysts has projected that there will be foreign exchange reform after the election. Accordingly, the local currency is projected to cross N500 per United States dollar while the authority seeks convergence of exchange rates to attract foreign investors.
The CBN led by Godwin Emefiele has insisted on a no-devaluation policy, though market intervention has slowed down while maintaining a multi-tiered exchange rate in an import-dependent economy.
In a recent visit to Nigeria, the International Monetary Fund (IMF) said FX shortages experienced by the private sector since the onset of the pandemic are unlikely to be resolved by demand management policies and administrative controls.
IMF said exchange restrictions resulting from administrative control of foreign exchange allocation, including for imports of basic necessities, tend to generate distortions in private and public decision-making, hinder transparency, and hamper the move towards a more diversified economy.
To support the local currency, analysts said the Nigerian government might take measures to preserve foreign currency reserves, implement strict import restrictions, or even consider some capital controls on nonresident deposits after transition in May 2023.
Already, Naira instability has increased pressures on local debt, pushing the value of foreign debt upward when converted with the local market rate.
At the FX market yesterday, the open indicative rate closed at N461.60 to the dollar on Monday. An exchange rate of N462.06 to the dollar was the highest rate recorded within the day’s trading before it settled at N461.50.
The Naira sold for as low as N440 to the dollar within the day’s trading. A total of 40.28 million dollars was traded at the official Investors and Exporters window on Monday. #Naira Falls amidst Expected Post-Election Devaluation