On January 25, the Nigerian currency plunges to an unprecedented low of NGN950 per dollar, reflecting its ongoing downward slide against the greenback. This latest development almost brought the official rate in line with the parallel market exchange rate, which stood at NGN1,400:USD1, according to a Reuters report.
The International Monetary Fund (IMF) has attributed Nigeria’s currency challenges to what it calls “loose” fiscal and monetary policies. The naira’s decline has been a cause for concern, with experts scrutinizing the impact of these policies on the nation’s economic stability.
Post-Leadership Change Impact on Naira
The Nigerian currency plunges to a new all-time low, reaching NGN950 per dollar, as it continued its downward slide against the greenback. Acting governor of the Central Bank of Nigeria, Folashodun Shonubi contends that the naira is currently undervalued despite its challenging performance. The depreciation of the naira has been ongoing since Bola Tinubu assumed the presidency, succeeding Muhammadu Buhari and replacing former Central Bank of Nigeria (CBN) Governor Godwin Emefiele. Prior to this change, the CBN had maintained a fixed exchange rate for the naira at just under NGN500:USD1.
Since the new CBN leadership took charge, the naira has steadily lost value against major currencies on both the official and unofficial markets. Experts attribute this decline to foreign exchange shortages.
Possible Abandonment of Exchange Rate Policy
Nigeria’s currency breached the 900 per dollar mark for the first time, prompting speculation about the potential abandonment of the floating exchange rate regime adopted in mid-June. Economic analysts are closely watching the situation amid concerns that the naira may face further depreciation in the coming weeks.
Greenback Shortages Fuel Naira’s Slide
Ongoing shortages of the U.S. dollar on both formal and informal markets have intensified the naira’s decline against major currencies. The Economic Intelligence Unit’s warning about the possibility of Nigerian authorities reconsidering their exchange rate policy has added to the uncertainty surrounding the currency.
Central Bank’s Perspective on Naira’s Value
Contrary to the ongoing depreciation, the current CBN governor, Olayemi Cardoso, has asserted that the naira is “undervalued.” Speaking at the launch of an economic outlook report, Cardoso revealed that efforts are underway to rectify this situation and achieve genuine price discovery. “We believe that the naira is currently undervalued, and, coupled with coordinated measures on the fiscal side, we will expedite genuine price discovery in the near term. This coordinated approach will contribute to a more balanced and stable exchange rate,” Cardoso stated.
IMF Representative’s Perspective
Ari Aisen, the IMF’s representative in Nigeria, acknowledged the impact of loose fiscal and monetary policies on the naira but suggested that the country could potentially reverse the trend by implementing tighter policies. As the Nigerian currency plunges and Nigeria grapples with its currency challenges, attention is focused on the government’s response and the measures that may be taken to stabilize the naira.
CBN’s Initiatives for Forex Inflows
The Central Bank of Nigeria (CBN) is reportedly planning measures to ensure that all foreign exchange inflows are returned to the central bank. These steps aim to address the challenges posed by foreign exchange shortages.
Hopes for Stability and Investor Confidence
Governor Cardoso expressed optimism that the reforms being undertaken by the CBN will result in a consistent and stable exchange rate. Such stability, he believes, will enhance investor confidence and position Nigeria as an attractive destination for foreign direct investment. As the CBN takes proactive steps, the nation anticipates a more balanced economic outlook.
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