• Monday, July 22, 2024
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Nigeria Naira Plunges to Record Low, Falling for 9th Straight Year

Rising oil receipts fail to help naira comeback

Nigeria’s currency plunged to a record in the spot market on Friday, narrowing the gap with the rate that investors and exporters pay for the naira, according to Bloomberg.
The currency fell 2.2% to a record N424.27 versus the dollar as of 2.46 p.m. on Friday. It was the biggest drop in the official exchange rate since Feb. 23. The currency has weakened every year since 2012.

The naira has fluctuated widely this year around a largely fixed spot rate of around 415 as investors try to gauge the central bank’s exchange rate direction.
The Central Bank of Nigeria has been selling the greenback at between 437 to 444 naira per dollar to investors since early October.
“The spot rate has strangely been around the 411-level,” Omotola Abimbola, an analyst at Lagos-based Chapel Hill Denham said by email.

But according to the central bank’s real effective exchange rate, “the currency is overvalued by around 12% and that should be an indication of the adjustment we need to see.”

Read also: Burger King Whopper index shows naira overvalued

Africa’s largest economy operates multiple exchange windows including a rate for investors and exporters, and others for government transactions, small businesses and travelers in a bid to manage demand for the greenback.

The Abuja-based central bank has devalued the currency three times since March 2020 as lower oil income put pressure on the nation’s reserves, though it has resisted calls by International Monetary Fund and the World Bank has for a merger of the multiple rates.

The central bank is unlikely to allow a convergence of the exchange rates in a pre-election year, said Cheta Nwanze, a lead partner with SBM Intelligence. “That is a huge political risk,” Nwanze said.