Nigeria’s currency is poised for the biggest weekly drop in eight months, signaling the Central Bank of Nigeria’s (CBN) tolerance for more flexibility in the exchange rate.
The naira traded at N418.55 to the greenback as of 11:48 a.m. on Friday in Lagos, the commercial hub. The official rate plunged to N420.40 naira on Tuesday before recovering.
The naira had weakened by 1.68 percent against the dollar at the official NAFEX market on October 14, 2021, closed at 422.07 to the dollar, its record low since the inception of the I&E forex window in April 2017.
Nigeria’s Vice President Yemi Osinbajo has called for the currency to be traded more freely, adding that the central bank’s approach favours those able to obtain dollars at the official rate, because they can then sell the foreign currency in the more expensive parallel market where the greenback is freely traded around N575. There has been more flexibility in the spot rate since the vice president’s comments.
Feelers from major foreign exchange users indicated that sourcing dollar from official channel has not improved despite the hype by banks on their ability to meet demand by retail forex users.
Analysts said the challenge with forex in the country is mainly of short supply and as long as that situation persists, users will continue to look for alternative channel to meet their needs.
Analysts and economists attributed the present crisis in the forex market to the wrong pricing of the foreign currencies by the regulatory bank.
The depreciation “seems to reflect a CBN bias for relatively more foreign exchange flexibility,” said Samir Gadio, London-based head of Africa strategy at Standard Chartered Bank. “The market is still trying to ascertain the scope and end-goal of this FX adjustment.”
A more market responsive exchange rates would ease the pressure on the naira, Shubham Chaudhuri, the World Bank’s country director for Nigeria, said this week. “This will reduce the effective exchange rates that most Nigerians deal with,” he said.
Africa largest economy hopes that the completion of a 650 000-barrel a day refinery by Aliko Dangote would save 30 percent of the foreign exchange currently used to import refined petroleum products and ease the pressure on the naira, Minister of Finance Zainab Ahmed said on Tuesday. “The export of refined products will also earn the country foreign exchange,” Ahmed said.
With Agency report