Cheerfully, most Nigerians were greeted with the news that the Naira gained – albeit slightly – against the Dollar last week. This is coming almost a year after the former had consistently slumped vis-a-viz the latter.
Nigeria’s battered currency has lost 70% against the greenback since foreign exchange controls were relaxed in 2023, including a steep depreciation 12 months ago – Bloomberg reported Thursday January 16, 2025.
The international news agency headquartered in New York, USA, however, noted that the performance of Nigeria’s currency since December tells a different story, with the naira holding in a narrow range roughly between 1,550 and 1,520 per dollar.
“We’re actually quite bullish on the naira, and we think that the naira can stabilise at 1,500, but potentially even stronger,” Deutsche Bank’s chief South African and sub-Saharan Africa economist Danelee Masia was quoted as telling Bloomberg.
The bank chief remarked that Nigeria had raised dollar reserves, citing the $2.2 billion eurobond the nation sold on Dec. 2, while cautioning it remains vulnerable to the price of crude.
The Naira’s slide was viewed as a deliberate result of relinquishing its longstanding fixed peg against the Dollar after President Bola Ahmed Tinubu assumed office in May 2023.
Expatiating, Bloomberg opined that holding the currency at an artificially strong level was blamed for distorting the economy and harming the nation’s exports.
As a result, the change reportedly was welcomed by foreign investors and the International Monetary Fund, even as it drove up the price of imports and fanned a cost-of-living crisis.
Continuing, the news agency stressed that while the Central Bank of Nigeria does still step into the currency market from time to time to add liquidity, intervention is not viewed as the reason for recent naira stability.
Quoting Ayo Salami, chief investment officer at Emerging Markets Investment Management Limited in London, the wire service explained that monthly dollar inflows into Nigeria were at $2.5 billion from foreign direct investment, versus the Central Bank of Nigeria’s own supply of $280 million.
“With most of the flows in the forex market coming from non-CBN-related sources, I think it would be reasonable to consider the current FX rate as real,” Salami said, arguing that Nigeria’s high interest rates are attractive to offshore capital.
“If rates remain above 15%, this is likely to be sufficient to retain the FDI flows and keep the forex rate stable,” he forecasted, adding that current naira levels around 1,550 per dollar “is a reasonable reflection of supply and demand.”
Bloomberg ended by stating that the CBN has raised interest rates to a record 27.5% to combat inflation, which stood near a 29-year high of 34.8% last month, and is expected to keep policy tight after its next meeting on Feb. 17-18.
Leading with the headline that confidence builds as Naira has finally found its footing, the Bloomberg report relayed the optimism of financial analysts who expect the rare run of stability of the currency of Africa’s largest population to last.
While congratulating the Central Bank of Nigeria (CBN) for the said appreciation of the Naira against the Dollar, we must interrogate the challenge of how to enhance the value of our currency in the highly unpredictable market of foreign currency exchange.
Observers Times articulates a few measures worthy of the favourable consideration of concerned authorities.
First, Nigeria must intensify the diversification and expansion of its exports.
Second, the undue pressure on the forex market needs to be eased.
Third, while advocating for Naira demonetization, the over 34.80% inflationary ratio must be controlled.
Fourth, long-term supply-side policies would have to be initiated towards enhancing competitiveness and lowering production costs.
Lastly but not the least, government would do well to successfully reduce insecurity in the land and wrestle corruption to the ground.
