Naira’s Value Plummets by 60% in a Year, Despite Recent Rally: BMI Report
The Nigerian naira has taken a significant hit, weakening by 60% compared to its value a year ago, according to a recent report by FitchSolutions BMI Research. This decline comes despite a recent rally that briefly positioned the naira as the world’s best-performing currency.
The naira’s troubles began in June when the currency was devalued in an attempt to unify exchange rates across different forex markets. However, this move backfired, leading to a steep decline in the naira’s value due to weak regulatory oversight and lingering policy uncertainties.
Recent reports indicate that the naira’s uptrend faltered last week, with the currency settling at N1169 per US dollar. This depreciation was driven by increased demand for foreign currency at the official window, outstripping the total market supply.
In response to the weakening currency, the Central Bank of Nigeria (CBN) has been selling forex to currency traders at the parallel market below market rates. Despite allegations of defending the naira with external reserves, the CBN has not announced any forex sales to currency traders in the parallel market since April 8.
Looking ahead, FitchSolutions BMI Research anticipates a mixed performance for major Sub-Saharan African currencies in 2024. While the Nigerian naira is expected to recover some of its losses over the coming quarters, other currencies like the Kenyan shilling and Zambian kwacha are forecasted to perform relatively well, building on their strength in the year-to-date.
Despite the recent rally that saw the naira appreciate by 23.0% against the US dollar in April, it remains significantly weaker than it was a year ago. The CBN’s efforts to bolster the currency through interventions in the foreign exchange market and interest rate hikes are expected to continue in the short term, supporting the naira’s rally.
