Naira is 60% Weaker Compared to One Year Ago: BMI
The Nigerian naira is 60% weaker when compared with spot rate of 12 months ago, despite a steep rally that put the local currency as the world’s best performer, experts noted in a sub-Saharan Africa currency round-up note.
In June, the authority devalued the naira in a bid to unify exchange rates across the forex markets. The devaluation went wrong and exchange rate plummeted due to the apex bank’s weak regulatory oversight and carried over policy misnomers.
MarketForces Africa reported that the local currency uptrend relapsed last week, settling at N1169 per US dollar as foreign currency demand at the official window outpaced total market supply.
Similarly, exchange rate fell off the cliff in the parallel market amidst anticipation of further US dollar sales to Bureau de Change operators holding sway in the informal currency market. GTCO Sinks by 27% Over Rapid Selloffs
While the Central Bank of Nigeria (CBN) rebuff allegation of defending the naira with external reserves, the monetary authority has been selling forex to currency traders at parallel market below market rate.
The apex bank announced it sold $10,000 to 1508 Bureau de Change operators at N1101, while the authority also placed limit of 1.5% as FX spread. Since April 8, the CBN has not announced it sold forex to the currency traders in the parallel market.
“We anticipate a mixed performance for the major Sub-Saharan African (SSA) currencies in 2024”, FitchSolutions BMI Research said in a SSA currency round-up. In 2023, the majority of SSA currencies fell sharply against the US dollar, with many continuing to depreciate in the year-to-date.
The firm had flagged that the constrained dollar supply in Nigeria and investors’ worries about Ghana’s debt restructuring talks caused the naira and cedi to perform especially poorly.
BMI report stated that Nigerian naira will pare back some losses over the coming quarters, while the Kenyan shilling and Zambian kwacha will also perform fairly well in 2024 having seen significant strength in the year-to-date.
“We believe that the Nigerian naira will pare back most of the losses it incurred over Q1 2024, ending 2024 at N1,000”, the frim stated. The naira has strengthened markedly on the official market over the past month, having reached N1,150 from N1,625 per US dollar in mid-March.
“While the naira is the world’s strongest-performing currency in April thus far — having appreciated by 23.0% against the US dollar — it is still 60.0% weaker than it was a year ago”, the report said. The report hints that The Central Bank of Nigeria (CBN) reports that the rally is driven by stronger foreign exchange inflows following the cumulative 600 basis-point hike since February.
“We note that the strengthening of the naira coincides with a renewed decline in international reserves, which could be the result of the CBN intervening in the foreign exchange market to bolster the currency.
“We believe that the naira’s rally will continue in the short term. The CBN will likely continue raising interest rates to signal to international investors its commitment to inflation targeting and orthodox monetary policy, which should support foreign currency inflows”, BMI report stated. #Naira is 60% Weaker Compared to One Year Ago: BMI
