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Central Bank’s Forex Policies Falter as Exchange Rate Nears N1,700/$1 Threshold

February 17, 2024









The exchange rate between the Nigerian naira and the US dollar has plunged to an unprecedented low, hitting N1,537.96/$1 in the official market.

This alarming depreciation comes in stark contrast to the various policies enacted by the Central Bank aimed at curbing the currency’s devaluation.

In the parallel market, where naira transactions also occur, operators have informed Nairametrics that the exchange rate has soared to N1650/$1. However, they caution that the actual rate may fluctuate, contingent upon the availability of dollars.

An importer shared with Nairametrics that, in a bid to secure currency, he offered to purchase $1 million at a rate of N1,700/$1. Unfortunately, he was unable to procure the dollars, indicating that the supply of the currency is severely constrained. 

Naira’s Decline Persists Despite CBN Policies

Despite the Central Bank’s efforts to revamp the foreign exchange system through a series of reforms aimed at bolstering supply and easing demand restrictions, the Nigerian naira has plummeted by 10% in value.

The latest data as of January 31 reveals a worrying trend, with the exchange rate standing at N1,577.9/$1, a significant deterioration from N1,455/$1 in the official market.

The rapid depreciation of the Nigerian naira underscores mounting skepticism surrounding the efficacy of the Central Bank’s forex policies, with anticipated increases in forex inflows failing to materialize.

In a flurry of activity over the past two weeks, the Central Bank has issued over six circulars and introduced policy measures aimed at fostering greater liberalization within the sector.

One of the most notable measures includes a move towards a market-driven exchange rate mechanism, which could potentially lead to the Naira being freely floated.

A circular from the Central Bank announced major changes, such as ending the limit on the spread between buy and sell rates in interbank foreign exchange transactions and removing restrictions on the sale of proceeds from interbank transactions. 

The circular highlighted, “A key objective of the ongoing foreign exchange market reforms by the Central Bank of Nigeria is to promote a market-based price discovery system,” indicating a shift towards a more liberalized forex regime. 

According to the new guidelines, forex transactions are to be conducted on a “Willing Buyer and Willing Seller” basis, which will allow more flexibility in exchange rates as they will be determined by market forces. 

This approach is viewed as a significant step towards adopting a fully floating exchange rate system, where market dynamics are left to determine the rates.

Following the announcement of this policy, the exchange rate in the official market weakened from N1,469/$1 to N1,534/$1. Most recently, the Central Bank issued a circular directing banks to deposit travel allowances for personal and business use into customers’ debit cards instead of disbursing cash as previously practiced. 

The policy initiated under the leadership of Godwin Emefiele at the Central Bank did not specifically require banks to make payments exclusively into debit cards.  

The apex bank also targeted international oil and gas companies, amending guidelines on cash pooling of their forex inflows, stopping them from remitting 100% of their inflows.

On February 15th, the exchange rate closed at N1,498/$1 but reached an all-time intra-day high of N1607. By the end of the week, the rate had closed at N1,537.96/$1, with an intra-day peak of N1,631/$1. 

Exchange Rate Under Strain Due to Structural Issues

In the face of a persistent depreciation of the naira, despite a surge in forex turnover within the official exchange window, analysts point to a concerning lack of forex inflow amidst escalating demand. This sentiment reverberates across social media platforms and television discussions.

The parallel market exchange rate soared past the N1000/$1 mark on October 9th, 2023, followed by the official market on December 8th, 2023, with the downward trajectory continuing unabated.

Responding to last year’s depreciation, Minister of Finance, Wale Edun, announced Nigeria’s anticipation of a $1 billion inflow, with prospects of a substantial $10 billion influx of foreign exchange in the near term, optimistically within weeks rather than months. However, despite this announcement on October 24th, nearly four months later, no significant inflow has materialized, leaving stakeholders wary of the currency’s stability.

Nigeria’s external reserves have remained steady at $33 billion, despite World Bank projections suggesting a potential decline to $24 billion by the end of the year. 

In the midst of these challenges, a significant observation was made by Yemi Cardoso during an interview on Arise TV two weeks ago. He highlighted that the stability of the Naira would depend on addressing the underlying economic issues such as inflation, economic growth, and increasing exports.  

He emphasized that “The eventual stability of the Naira will be driven by our ability to address the fundamental issues affecting our economy…bring inflation under control and promote the growth of Nigerian businesses such that we eventually export much more than we consume as a nation.” 

Recent data from the National Bureau of Statistics (NBS) reveals that Nigeria’s inflation rate climbed to 29.9% in February, underscoring the severe economic challenges the country faces.

It appears that without addressing these structural issues, forex policies may struggle to achieve the desired outcomes, including exchange rate stability. 



Credit: Nairametrics

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