The Economist Intelligence Unit (EIU), a renowned global business intelligence and market insights group, has forecasted that the Nigerian federal government will revert to a system of greater control over the exchange rate to address the ongoing pressure on the naira’s value.....KINDLY READ THE FULL STORY HERE▶
According to the EIU’s latest report on the Nigerian currency, the naira is expected to experience further decline in the near future, potentially reaching as low as N1,018 per dollar in 2027, due to persistently high and rising inflation….CONTINUE READING
The EIU emphasized that the Central Bank of Nigeria (CBN), responsible for managing the country’s currency, lacks sufficient experience in handling a flexible exchange rate system. Before President Bola Ahmed Tinubu’s decision to change the system, Nigeria had achieved some success in managing the naira’s value and its impact on the economy.
As a result of the current shortage of foreign currency, particularly in fulfilling demands for foreign exchange through Form A and M, and speculation in the market, the CBN might intervene more to manage the exchange rate. This is further encouraged by the fact that about 98 percent of the country’s foreign reserves are held in cash.
The EIU report projected that the naira’s depreciation will be slower in the medium to long term than previously expected, estimating an average rate of “N815 to US$1 in 2024” and a further decline to “N1,018 to US$1 by the end of 2027.” The report noted that this projected rate is approximately 10 to 15 percent lower than what would be observed in the black-market exchange rate during the same period.
Meanwhile, the naira’s depreciation continued in the Investors’ and Exporters’ (I&E) forex window, Nigeria’s official foreign exchange market, with the dollar trading at N775.76 on Friday compared to N768.60 on Thursday. The FX market experienced a decline in turnover, dropping by 38.89 percent to $54.18 million on Friday from $88.66 million on Thursday.
The EIU expects foreign-exchange scarcity to persist in the near term despite the partial unification of the official and black-market exchange rates. As a result, it foresees the Central Bank of Nigeria resorting to more intensive management of the exchange rate in late 2023 to address the rapid price increases. The CBN’s recent unification of Nigeria’s multiple exchange rates in June led to a significant naira devaluation and a narrowing of the spread with the black-market rate. However, inconsistencies in applying a more liberal currency regime, coupled with foreign-exchange access restrictions, may cause unease among foreign investors and keep liquidity tight.
