Naira Depreciates by 37.6% Against Dollar in January
The exchange rate between the Nigerian naira and the US dollar closed January at N1,455.59, marking a significant 37.6% depreciation in one month. In comparison, the exchange rate closed at N907.1/$1 at the end of December 2023.
Key Points:
Black Market Rate: At the black market, the exchange rate depreciated from N1,215 to N1,470 against the dollar, representing a 17.3% depreciation month-to-date.
Challenges and Factors: Nigerians experienced a month-long depreciation of the naira as demand continued to outpace supply across markets. The fall in the official exchange rate began in December 2023, crossing the N1,000/$1 barrier on December 8th, trading at N1,089.51/$1 by January 9th, and reaching an all-time low of N1,348.62/$1 on January 29th.
CBN Forex Policy Actions: The Central Bank of Nigeria (CBN) has been actively addressing issues of foreign currency speculation and hoarding by Nigerian banks. A new circular introduced guidelines to reduce the risks associated with these practices. The CBN Governor, Mr. Yemi Cardoso, stated that the naira is undervalued, promising to work towards real price discovery in the foreign exchange market in 2024. The CBN plans to implement inflation-taming policies and collaborate with the Ministry of Finance to stabilize the exchange rate and curb inflation.
Official Rate and Black Market Disparity: Sources suggest that the depreciation in the official market is part of the CBN's attempt to align the official rate with the black market rate, eliminating the disparity. The goal is to attract forex supplies from the black market to the official market, promoting stability.
Challenges and Portfolio Investments: The major challenge faced by the country is the influx of foreign portfolio investments, seen as a critical component for stability. However, achieving this may require the CBN to increase its benchmark lending rate, currently at 18.75%, aligning it with Nigeria's headline inflation rate.
The fluctuations in the exchange rate highlight the complexities and challenges in Nigeria's foreign exchange market, impacting businesses, individuals, and the broader economy. The CBN's efforts aim to create stability and bridge the gap between the official and black market rates.
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