Naira Appreciates 23% On Official Market

Naira Appreciates 23% On Official Market

During the course of one week, the Nigerian currency, the naira, experienced a significant increase in value against the US dollar.

It gained 23.51 percent against the dollar, closing at N889.86/$ on the official Investors and Exporter window on Friday. This represents a gain of N209.19 from the all-time low it reached last week at N1,099.05/$.

The naira’s low point of N1,099.05/$ was significant as it marked the lowest rate at which the naira officially closed since the Central Bank of Nigeria adopted the Investors and Exporter window as the official trading channel. This decline in value had contributed to a turbulent period for the national currency.

Despite the recent recovery, challenges still persist for the naira, particularly in the form of dollar shortages within the country.

According to the World Bank, the naira has depreciated by 41 percent in the official market and by 30 percent in the parallel market since May.

These depreciations have led to higher importation costs and have played a role in the elevated levels of inflation, which stood at 28.20 percent as of the end of November.

However, the World Bank remains optimistic about the naira’s prospects for recovery.

It believes that with a more transparent, market-reflective, and flexible exchange rate, supported by tightening monetary policies, the naira will become more stable, alleviating the pressures on inflation.

“Similarly, while the depreciation of the naira contributes to short-run inflation, over time a more transparent, market-reflective, and flexible exchange rate, underpinned by monetary policy tightening, is also likely to be more stable, thereby easing the pressures on inflation,” it said.

One of the factors contributing to the naira’s market pressure is the backlog of foreign exchange (FX) contracts. To address this, the Central Bank of Nigeria has commenced the process of clearing these contracts.

Additionally, the CBN governor, Olayemi Cardoso, has acknowledged the issue of volatility and stated that the bank is working to minimize the naira’s fluctuations against the dollar.

The CBN is currently reviewing its FX policies in order to develop a more effective approach.

Overall, while the naira has shown some signs of recovery, it still faces certain challenges, such as dollar shortages and inflationary pressures.

However, concerted efforts by the central bank and relevant institutions, coupled with a more transparent and flexible exchange rate system, offer hope for the naira’s stability and eventual recovery.