Naira expected to fall beyond N1000/$ as rising inflation persists

The Economist Intelligence Unit (EIU), a distinguished provider of global business intelligence and market insights, says pressure on the Naira is expected to continue in the near term, falling to as low as N1,018 per dollar in 2027, as high and rising inflation persists.

The EIU in its latest report about the Nigerian currency, pointed out that the Central Bank of Nigeria (CBN), which manages the country’s money, doesn’t have much experience handling a flexible exchange rate system. Before President Bola Ahmed Tinubu decided to change the system, Nigeria had been somewhat successful in managing the naira’s value and its impact on the economy.

The EIU said, “The CBN lacks experience in conducting monetary policy under a float, and the need to control rapidly increasing inflation will become more acute over time.

“Our forecast is finely balanced, but we expect a return to heavier exchange-rate management from the second half of 2023 as the naira slides beyond N800:US$1 from N770:US$1 in early July.”

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The research firm argued that there is currently a shortage of foreign currency in the country, especially when it comes to fulfilling demands for foreign exchange through Form A and M. This, combined with speculators taking advantage of the situation, might push the CBN to step in more and “intervene” in the market, especially since about 98 per cent of their foreign reserves are in cash.

However, the EIU noted that Nigeria’s foreign reserves are still relatively liquid, which means they can pay for imports for at least another six to eight months.

Some analysts believe this gives the government enough time to increase revenue, stop financial leaks, and pay off some debts.

The report also projected that because of the unstable exchange rate and how it affects people’s lives, the naira will lose its value more slowly than expected in the medium to long term.

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They estimated that the average rate will be “N815 to US$1 in 2024” and will further decline to “N1,018 to US$1 by the end of 2027”.

Meanwhile, Naira on Friday depreciated by 0.93 per cent at the Investors’ and Exporters’ (I&E) forex window, Nigeria’s official foreign exchange (FX) market, following a shortage of dollars.

After trading on Friday, the dollar was quoted at N775.76 as against N768.60 quoted on Thursday at the I&E window, data from the FMDQ indicated.

At the parallel market, the naira strengthened by N3 as the dollar traded at N867 at the close of the market on Friday from N870 on Friday morning.