In a startling economic development, the Nigerian Naira experienced a significant 37.6% depreciation against the US Dollar, concluding the month of January 2024 at N1,455.59. This alarming trend follows a month-long struggle for stability in the foreign exchange market, leaving Nigerians grappling with economic uncertainties.
Data from financial platform Nairametrics reveals that the exchange rate closed at N907.1/$1 at the end of December 2023. The parallel black market also witnessed a 17.3% depreciation, with the exchange rate plummeting from N1215 to N1470 against the dollar by the end of January.
Throughout the month, Nigerians faced the challenges posed by a persistent imbalance between the demand and supply of the Naira across various markets. The official exchange rate’s decline traces back to December 8th, 2023, when it breached the N1000/$1 threshold. After a series of fluctuations, it hit an unprecedented low of N1,089.51/$1 on January 9th, closely mirroring the black market rate of N1,245/$1. Sustaining a level below N1000/$1 for 12 days, it reached another historic low of N1,348.62/$1 on January 29th.
To address the escalating issues of foreign exchange speculation and hoarding by Nigerian banks, the Central Bank of Nigeria (CBN) has implemented stringent measures. The CBN’s Governor, Mr. Yemi Cardoso, acknowledges the undervaluation of the Naira and has pledged proactive efforts to facilitate real price discovery in the foreign exchange market throughout 2024.
In response to these challenges, the CBN plans to implement inflation-taming policies and collaborate closely with the Ministry of Finance to stabilize the exchange rate and curb inflation. The central bank’s recent actions are part of an ongoing strategy to align the official exchange rate with the black market rate, eliminating existing disparities and fostering stability. It is anticipated that redirecting forex supplies from the black market to the official market could pave the way for economic equilibrium.
However, a major obstacle remains—the influx of foreign portfolio investments. Many experts view these investments as the missing piece in the puzzle. Addressing this may require the CBN to consider increasing its benchmark lending rate, which currently stands at 18.75%, to align with Nigeria’s headline inflation rate.
As the nation navigates these economic challenges, the effectiveness of the CBN’s measures and their impact on the overall economic landscape will be closely monitored in the coming months.
Credit: NairaMetrics
