The naira is expected to depreciate further in 2022 amid rising foreign reserves, according to international credit rating agency, Fitch Solutions, as it revises previous projections.
Fitch had reported that by year end, the naira’s value will depreciate to N430 to $1 due to expected devaluation by the Central Bank of Nigeria (CBN) but has now amended it to N416.00/$1.
The projection was reviewed as CBN’s last devaluation came in May when the naira’s worth was knocked down to N408.16/$1 on May 12, from N380/$1 the previous day.
Nigeria’s currency is also expected to devalue to N428/$1 in 2022, with Fitch stating a possibility of devaluations by the CBN upon weak reserves.
The country’s reserves had been depleted by the COVID-19 pandemic and global lockdown which disrupted trades with international partners and dropped oil prices in 2020. In H1 2021, reserves declined to $33.3 billion in July, from $36.4 billion in January.
However, CBN measures, supported by rising oil prices and global financial institution handouts such as the $3.4 billion Nigeria received from the IMF Special Drawing Rights (SDRs) in late August, have boosted the reserves.
As of November 18, 2021, the external reserves was $41.41 billion, against October’s $41.34 billion.
In its report on Nigeria Country Risk, Fitch said, “The naira will weaken further – to an average of NGN428.00/USD – in 2022 as dollar demand continues to rise on the back of the strengthening economic recovery.
“However, we expect Nigeria’s international reserves to continue to improve in the coming quarters, thus bolstering the CBN’s ability to manage the pace of currency depreciation.
“At Fitch Solutions, we expect that the Central Bank of Nigeria (CBN) will seek to maintain the current value of the managed naira exchange rate until the end of 2021, after it implemented a devaluation in May 2021 that saw the currency fall from NGN380.00/USD on May 11 to NGN408.16/ USD on May 12.
“The devaluation involved the adoption of the weaker exchange rate for investors and exporters (known as the Nafex) as the new official rate. Since then, the naira has fallen slightly to a spot of NGN412.75/USD, weakening by a total of 8.4% in the year to date.
“While we previously expected that the CBN would implement a substantial further devaluation to NGN437.10/USD by the end of 2021, we now forecast that the currency will depreciate moderately to NGN 416.00/USD. The revision reflects our expectation of a significant improvement in Nigeria’s foreign reserves in the coming months. Weakening reserves have in the past pointed to imminent devaluations by the CBN.” Fitch said.