After Losing 70% of Its Value, Naira Finally Becomes Stable in Official Market
- One year following a sharp drop against the dollar, the naira is currently going through an unexplained period of stability
- In just one year, 2023, Nigeria's currency lost 70% of its value in relation to the US dollar, indicating a significant depreciation
- The naira since December, when it has remained stable in a narrow range of roughly 1,550 to 1,520 per dollar, paints a different image
Legit.ng journalist Zainab Iwayemi has 5-year-experience covering the Economy, Technology, and Capital Market.
The naira is experiencing an unusual period of stability one year after a precipitous decline against the dollar, and economists predict that this trend will continue.
Source: Getty Images
Since foreign exchange regulations were loosened in 2023, Nigeria's currency has depreciated sharply, losing 70% of its value against the US dollar in just a single year.
A contrasting picture is painted by the naira's performance since December, when it has held steady in a small band of about 1,550 to 1,520 per dollar, BusinessDay reported.
“We’re actually quite bullish on the naira, and we think that the naira can stabilise at 1,500, but potentially even stronger,” Deutsche Bank’s chief South African and sub-Saharan Africa economist Danelee Masia told Bloomberg Television’s Jennifer Zabasajja.
She noted that Nigeria has raised dollar reserves, citing the $2.2 billion Eurobond it sold on Dec. 2nd, while cautioning that it remains vulnerable to the price of crude.
The naira’s slide was a deliberate result of relinquishing its longstanding fixed peg against the dollar after President Bola Tinubu took office in May 2023.
It is believed that maintaining the currency at an unnaturally high level distorted the economy and hurt the country's exports.
Therefore, even though the reform increased import prices and fueled a cost-of-living issue, it was welcomed by the International Monetary Fund and international investors.
Since then, intervention is not thought to be the cause of the recent stability of the naira, even though the Central Bank of Nigeria continues to occasionally intervene in the currency market to boost liquidity.
According to Ayo Salami, chief investment officer at London-based Emerging Markets Investment Management Ltd., foreign direct investment inflows into Nigeria are $2.5 billion every month, whereas the Central Bank of Nigeria's own supply is $280 million.
“With most of the flows in the forex market coming from non-CBN-related sources, I think it would be reasonable to consider the current FX rate as real,” he said, arguing that Nigeria’s high interest rates are attractive to offshore capital.
“If rates remain above 15per cent, this is likely to be sufficient to retain the FDI flows and keep the forex rate stable,” he said, adding that current naira levels around 1,550 per dollar “is a reasonable reflection of supply and demand.”
The CBN has raised interest rates to a record 27.5 per cent to combat inflation, which stood near a 29-year high of 34.8 per cent last month, and is expected to keep policy tight after its next meeting on Feb. 17-18.
Naira ends losing streak in official market
Legit.ng reported that the naira ended its week-long losses against the US dollar on Thursday, January 16, 2025, gaining 0.17%.
The Nigerian currency has been plagued by under-performance in the forex market, losing against the dollar for almost half the second week of January.
The marginal losses saw the naira hover just above the N1,500 threshold, with analysts suggesting it may have stabilised following the devaluation.
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Source: Legit.ng
