Naira rebounds, appreciates by 5.9% in 24 Hours
In a fresh twist of events, the Nigerian naira has experienced a remarkable recovery, appreciating by approximately 5.9% within a 24-hour period The Punch newspaper reports.
This positive trend follows the Central Bank of Nigeria’s decision to float the national currency, allowing it to find its own value against global currencies.
This move has garnered support from various sectors and economists, who anticipate a more unified exchange rate system and a revitalized foreign exchange market.
On Friday, at the close of business, the naira was valued at 663.04/dollar, showcasing an impressive surge from the previous day’s rate of N702.19/dollar.
According to data from the FMDQ Securities Exchange, the naira reached N664.04/dollar on Wednesday and N702.19/dollar on Thursday after the Central Bank of Nigeria directed banks to remove the rate cap on the official Investors’ and Exporters’ Windows. This decision has paved the way for buyers and sellers to quote rates that align with market forces, signaling a departure from the previous practice dictated by the central bank.
While the official exchange rate has witnessed appreciation, the parallel market has experienced depreciation, with rates opening at N750/dollar and closing at N760/dollar on Friday.
However, prominent financial institutions such as Morgan Stanley and JP Morgan foresee a positive outlook for the naira. Morgan Stanley’s report titled “Nigeria Sovereign Credit Strategy ‘No Longer Pumped'” projects appreciation in the near term, predicting a convergence between the I&E rate and the parallel market rate as formal banking channels witness increased flows. JP Morgan also expects stability in the official naira exchange rate, citing recent policy announcements as favorable for Nigeria’s sovereign credit.
The International Monetary Fund (IMF) has expressed support for Nigeria’s unified exchange rate regime, emphasizing its alignment with the IMF’s long-standing recommendations. Ari Aisen, the Resident Representative for Nigeria of the IMF, affirmed the organization’s willingness to assist in implementing foreign exchange reforms in the country. This endorsement from the IMF adds credibility and reassurance to the government’s efforts to stabilize the currency and strengthen the economy. Despite unifying exchange rates, the Central Bank of Nigeria maintains the ban on 43 non-eligible items from the forex market, reinforcing the policies introduced during the tenure of former Governor Godwin Emefiele.
An analysis of Nigerian Foreign Trade reports reveals that between 2016 and 2022, Nigerians imported various goods worth N18.12 trillion from the forex ban list issued by the Central Bank of Nigeria. Notable imports included crude palm oil, vegetable products, animal products, meat, vegetable fats and oil, steel products, rubber, plastic, clothes, and textiles from different countries. Moreover, recent data indicates that Nigerians imported five items worth N543 billion during the first quarter of 2023, despite the unavailability of forex for these banned items. This highlights the ongoing challenges of curbing imports and promoting local production.
The recent appreciation of the naira provides a glimmer of hope for Nigeria’s currency and economy. With the unified exchange rate system and increased support from international financial institutions, there are indications of a more stable and prosperous future. However, the challenges associated with enforcing the ban on non-eligible items and stimulating local production remain crucial for sustainable economic growth in Nigeria.