The value of the Nigerian local currency, Naira, worsen 1.7% to N422 per the United States dollar at the investors and exporters foreign exchange window ahead of inflation figure for the month of September 2021.
Despite lower supply, demand for dollar for productive and perhaps acceptable imports rise, though Nigerian external reserve has also maintained upward movement, near $40 billion, according to data from the Central Bank.
Unfortunately, increased external reserves failed to provide respite to the already pressured local currency amidst heavy dollar shortages in the currency markets. Since 2015, the naira has seen multiple devaluations at the official window despite the multi-tiered exchange rates in place to stem the local currency from free falling.
In spite of the central bank intervention in the foreign exchange market, the naira has not really fair well as the local currency continues to lose store of value.
Foreign investors have maintained distance with the largest Africa economy due to their inability to get dollar returns out of the country amidst a rising FX backlog.
Analysts said the naira would continue to face pressure as there is a lack of the nation’s competitive advantage that could attract more inflow from foreign investors.
MSCI Index had in recent time warned that it would downgrade the Nigerian index, though things began to improve post-lockdown except that the country receipt from oil export was affected by technical issues that reduce productivity.
In 2015, Naira was quoted at N197 to a dollar at the official exchange rate but the move by the monetary authority to converge exchange rate push it to N410.87 following a request by multilateral lenders.
Some analysts are expecting a higher denomination due to currency inflation, consensus at Broadstreet remains that the local currency is overvalued.
CBN has kept to its stance not to officially devalue the local currency, but naira keeps nose-diving, the pattern that has affected price level significantly. Low-value currency for import could hike manufacturers’ production costs, and then higher prices could worsen the inflation rate.
In the past five months, inflation has been on a decline, flatters by base effect rather than strategic policy measures from the policy authority. Frontier emerging market central banks continue to tackle inflation with higher interest rates.
But the CBN has remained pro-growth, driving credit to the real sector of the economy but unfazed with steep consumer price index figures despite setting a 6-9% inflation target for Nigeria.DMO to auction N150 billion FGN bonds for subscription