Nigerian naira is projected to conclude the current year at an exchange rate of N1,621.7 to the U.S. dollar. This reflects the ongoing fluctuations in the currency market despite the Central Bank of Nigeria's (CBN) efforts to achieve stability.
It is important to note that this revised projection represents a downward adjustment from the previous estimate of N1,571.7 against the dollar, which was made three months ago. This information is based on Stears' macroeconomic outlook for Nigeria.
"As we near the end of the year, we anticipate that currency pressures will persist unless there are significant interventions from the CBN. In the fourth quarter of 2024, we predict the naira will trade at N1,621.7/$ in the official market, an increase from our previous forecast of N1,571.7/$," the report indicated.
In October, the naira experienced a sharp decline of 8 percent, reversing the 3.7 percent gains recorded in September, which shifted its status from the best-performing currency to the worst for the month, according to the Africa-focused financial data firm.
Additionally, the naira fell by 2.5 percent in the parallel market, reaching a record low of N1,750/$, which maintained a high market premium of 7 percent in October.
The primary factors contributing to the naira's pressures include a reduced supply of foreign exchange, as evidenced by a significant drop in the average daily turnover at the NAFEM window, which fell to $81 million on October 29 from $359 million on October 21.
This situation persists despite an upward trend in Nigeria's foreign reserves, with the market anticipating a detailed plan for $2.2 billion in approved external borrowing. Data from the CBN indicated that foreign exchange reserves continued to grow, with a slight increase of USD 2.24 million week on week, reaching USD 40.28 billion.
As the year concludes, the demand for foreign exchange is anticipated to increase due to several factors, including travel-related expenses and inventory replenishment for the upcoming holiday season.
In October, there was a notable absence of substantial market intervention compared to August and September, when the Central Bank of Nigeria (CBN) conducted Retail Dutch Auctions and foreign exchange sales to authorized dealers and Bureau De Change (BDCs) to mitigate supply shortages.
Data from FMDQ securities indicated that the naira was valued at N1,675.62 on Monday, surpassing expectations. However, with the monetary authorities increasing rates by a quarter percentage point, the struggling currency is anticipated to show some movement.
In the aftermath of the most recent monetary policy committee meeting held this year, the Central Bank of Nigeria (CBN) made the decision to increase key interest rates from 27.25 percent to 27.50 percent. This adjustment represents the most extended period of tightening since the CBN Act was re-established in 2007, highlighting the pressing need to stabilize prices and reinforce the currency.
Financial analysts anticipate that the central bank will likely engage in market intervention, aligning with its historical strategy for managing currency-related risks, especially as the festive season draws near.