ON the heels of exchange rate volatility concerns, the Economic Intelligence Unit (EIU) has predicted Federal Government’s intervention in the exchange rate movement over apprehension the naira could plunge uncontrollably.
The EIU believes that the Central Bank of Nigeria (CBN), which manages the country’s exchang rate movement, lacks the experience to handle a floating forex regime.
The President Bola Tinubu administration has made foreign exchange unification a key component of its policies, which has seen the naira struggling to maintain a handsome level against foreign currencies, especially the dollar, the euro, and the pound sterling.
Economic watchers also argue Nigeria’s weak export earnings and external reserves would not be able to serve as enough buffer to hedge Nigeria’s forex problems.
The EIU, in its latest report, stated, “The CBN lacks experience in conducting monetary policy under a float, and the need to control rapidly increasing inflation will become more acute over time.
“Our forecast is finely balanced, but we expect a return to heavier exchange-rate management from the second half of 2023 as the naira slides beyond N800:US$1 from N770:US$1 in early July.”
The research firm observed a shortage of foreign currencies in Nigeria, especially in fulfilling foreign exchange demands through Form A and M.
This, combined with speculators taking advantage of the situation, might push the CBN to step in more and “intervene” in the market, especially since about 98 per cent of their foreign reserves are in cash, it stated.
The EIU, however, regarded Nigeria’s foreign reserves as still relatively liquid, saying the country can pay for imports for, at least, another six to eight months. Some analysts believe this gives the government enough time to increase revenue, stop financial leaks, and pay off some debts.
The report also projected that because of the unstable exchange rate and how it affects people’s lives, the naira would lose its value more slowly than expected in the medium-to-long term.
It estimated the average rate to be “N815 to US$1 in 2024” and to further decline to “N1,018 to US$1 by the end of 2027.”
The naira depreciated on Friday, July 28 by 0.93 per cent at the Investors’ and Exporters’ (I&E) window, Nigeria’s official foreign exchange (FX) market, following a shortage of dollars.
After trading on Friday, the dollar was quoted at N775.76 as against the N768.60 figure quoted the previous day at the I&E window, data from the FMDQ indicated.
The market recorded a decline in turnover, which dropped by 38.89 per cent to $54.18 million on Friday, from $88.66 million on Thursday.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.