The Economist
Intelligence Unit (EIU), an arm of The Economist of London, has predicted that
the Nigerian government will go back to a system where they have more control
over the exchange rate.
According to Business Day, EIU made the
prediction in its latest report about the Nigerian currency, the naira.
Last month, the Central Bank of Nigeria (CBN), complying
with the federal government’s directive, announced the unification of all segments of the foreign
exchange (FX) market, signalling the end of its control of the foreign exchange
market.
Since then, the exchange rate of the local currency has been determined by market forces.
The apex bank later clarified that the new exchange rate regime is a managed float and
not a free floating system.
The UK-based platform, in the report, said the move would be
taken to try and stop the naira from losing its value much further.
The EIU said the CBN, which manages the country’s money,
doesn’t have much experience handling a flexible exchange rate system.
“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,” EIU said.
“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 said that there is currently a shortage of
foreign currency in the country, especially when it comes to fulfilling demands
for foreign exchange through Form A and M.
This scarcity, the firm said, 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 percent of their foreign
reserves are in cash.
The EIU, however, said that Nigeria’s foreign reserves are
still relatively liquid, which means they can pay for imports for at least
another six to eight months.
The report also projected that because of the unstable
exchange rate and how it affects people’s lives, the naira will lose its value
more slowly than expected in the medium to long term.
The report estimated that the average rate will be “N815 to
US$1 in 2024” and will further decline to “N1,018 to US$1 by the end of 2027”.
Meanwhile, the naira depreciated by 0.93 percent at the
investors and exporters (I&E) forex window to close at N775.76/$ on Friday,
according to data from FMDQ Securities Exchange, a platform that oversees FX
trading in Nigeria.
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