The Nigerian currency (Naira) has recently faced an increase in value since the Central Bank of Nigeria’s repayment of debt.
On Monday, the CBN disclosed the repayment of $2bn from the backlog of its forward contract obligations, part of which included disbursements totaling $61.64m to foreign airlines for matured foreign exchange obligations.
Hakama Sidi Alia, the CBN Acting Director of Corporate Communications, stated, “These payments signify the CBN’s ongoing efforts to settle all remaining valid forward transactions, to alleviate the current pressure on the country’s exchange rate.
“It is anticipated that this initiative by the CBN should provide a considerable boost to the Naira against other major world currencies and further increase investor confidence in the Nigerian economy.”
However, despite these efforts, the naira closed trading at N1082.32/$ on Wednesday, showing a 26.36% decrease in value since Monday’s close at N856.57/$.
This marks the fifth time the naira has exceeded N1000 against the dollar on the official window since the removal of the rate cap.
The recent depreciation is occurring amid renewed efforts to boost liquidity in the foreign exchange market. The Minister of Finance and Coordinating Minister of Economy, Wale Edun, revealed that the Federal Government had secured a $2.25bn foreign exchange support facility from the African Import-Export Bank at the end of 2023.
Economic analysts, including Dr. Ayo Teriba, CEO of Economic Associates, attribute the naira’s volatility to inadequate foreign exchange supply.
Teriba emphasized that open engagement with investors could attract the needed forex to bolster reserves and meet demand in the FX market.
Professor Adeola Adenikinju, President of the Nigerian Economic Society, expressed optimism about naira stability in 2024. He cited factors such as the coming onstream of local refineries, increased revenue generation without relying on Ways and Means, and enhanced oil production as potential stabilizing factors.
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However, Financial Derivatives Company warned that the naira is likely to remain under pressure in 2024, given the CBN’s limited capacity to defend the currency.
Their report titled ‘2024: The Hard Road Ahead‘ suggested a potential fall towards N1,350/$ before a rebound in Q2.
