Naira Loses Value 4-Month after CBN Stops FX Injections
Trading near N1490 per US dollar at the Nigeria autonomous foreign exchange (forex) market, the naira has lost significant value just four months after the apex bank stopped market intervention. The development in the forex market is expected to increase the negative impacts of imported inflation through higher exchange rates across the markets.
In June 2023, Nigeria bit the bullet with large official depreciation after years of unorthodox foreign exchange management of Godwin Emefiele, erstwhile governor of the Central Bank. Emefiele served under a pseudo-pro-people agenda filled with a series of policy somersaults that plunged the economy downward across key metrics.
The move by the government to reform FX management has however triggered unintended consequences as the naira continues to lose value amidst growing poverty. It has become cheaper to buy foreign currency in the parallel market than the official window as the Nigerian naira crashes to N1482.57 at the autonomous FX market.
The latest depreciation of the local currency followed the Central Bank of Nigeria (CBN) decision to allow forces of demand and supply to set exchange rates in an import-dependent economy. For four months, the apex bank has stopped foreign currency injections into the FX market despite a sustained decline in US dollar supply by foreign investors.
The forex market recorded Naira’s largest daily devaluation in history on Monday, falling by more than 51% as forex demand continues to outpace the US dollar available to meet import requests.
According to data from FMDQ, NAFEM turnover declined by -20.7% or -USD117.9 million to USD451.4 million on Friday. The NAFEM window recorded an inflow of USD26.88 million, according to Coronation Research.
Analysts noted that there were no injections made by the CBN for the 16th consecutive week. However, foreign portfolio investors (FPIs) accounted for 5.7%, non-bank corporates accounted for 38.71%, exporters accounted for 38.06%, and others accounted for 17.5%.
The exchange rate pass-through effect on consumer prices has also exacerbated the inflation problem in the country, Deloitte said in its 2024 economic outlook, The firm affirmed that Nigeria is an import-dependent country and hence imported inflation will continue to affect domestic prices through the exchange rate.
With limited dollar sources in the short term, the central bank will continue to struggle to meet its foreign exchange needs, Deloitte stated, adding that other sources of foreign exchange supply such as nonoil exports, external financing, and diaspora remittances are unlikely to satisfy demand in the short run. Selloffs Provoke Spike in Nigerian Treasury Bills Yield
Critics maintain that few countries around the world have economic resources strong enough to allow forces of demand and supply to determine exchange rates, and Nigeria is not one of them. #Naira Loses Value 4-Month after CBN Stops FX Injections
