LAGOS, Nigeria (VOICE OF NAIJA)- In recent months, the Nigerian currency, the Naira, has witnessed a commendable positive rally against the US Dollar.
This development has sparked debates and discussions among economists, analysts, and citizens alike.
While some view it as a promising sign of economic stability and growth, others remain cautious, considering it a temporary respite.
The positive factors behind the Naira’s rally are notable.
Firstly, Nigeria’s heavy reliance on oil revenue means that the recent recovery in global oil prices has bolstered the country’s foreign exchange reserves, providing support to the Naira.
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Additionally, the Central Bank of Nigeria (CBN) has implemented various measures to stabilize the Naira, such as foreign exchange market interventions, strict regulations, and increased transparency.
These interventions have helped restore confidence in the Naira’s value.
Moreover, the Nigerian government has been focused on diversifying its economy away from oil dependency by promoting sectors like agriculture, manufacturing, and services, which can increase foreign exchange earnings and reduce the vulnerability of the Naira to oil price fluctuations.
It may be recalled that speculators who had projected that the naira would hit N2,000 to the dollar by the end of the first quarter of this year have been counting their losses with the way that the value of the naira gained positive momentum .
Like the proverbial Phoenix Nigeria’s legal tender literally rose from the dead sustaining a positive rally over the dollar exchanging in some places at 1$ to N1100, N900, to the amazement of a lot of naysayers and bookmakers who had predicted that the naira would hit a record N2000 to a $ at the end of March.
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The naira, which was N1,120 to the dollar as of December 31, 2023, went down to N1,400 in January and further depreciated at the black market to N1,950 in February.
Many speculators had expected the value of the naira to continue its free fall as some analysts had postulated.
Some of them, fearing that the value of the naira would further depreciate, had taken position at N1,900 and some had even bought the dollar at N1,800.
However, as the CBN began fulfilling its promise of clearing the legacy backlog and supplying liquidity at the Nigeria Autonomous Foreign Exchange Market (NAFEM) as well as to the bureau de change operators, the value of the naira gained strength.
Accordingly, the Naira, which had fallen to a low of N1,900 this year, closed at the official market on Wednesday at N1,250, while at the parallel market, street traders were selling at N1,100 to the dollar on Thursday.
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The CBN had earlier this week sold $10,000 to each BDC at a rate of N1,251 to the dollar to boost liquidity supply in the market, directing that each BDC to sell the dollars to eligible customers at a rate not exceeding 1.5 per cent above the purchase price, implying that each BDC is not expected to sell above N1,269 to the dollar.
While some analysts are quick to say that the positive gains being recorded may be a smokescreen after all as things could go awry, but the Association of Bureaux de Change Operators of Nigeria (ABCON) strongly considered such fears as unfounded.
The ABCON should know better
Giving a sort of blessed assurance, ABCON President, Dr. Aminu Gwadabe, in a statement, said aside monetary policy tightening that led to interest rate hike and more investment in government instruments and clearance of $7 billion forex backlog forward commitments, the recall of the BDCs has significantly boost dollar liquidity at the retail end of the forex market.
Gwadabe therefore expressed ABCON’s gratitude to the Cardoso-led CBN and other related agencies for the recognition of BDCs as the third leg of the foreign exchange market and an effective exchange rate transmission mechanism in forex management.
He said: “The reconsideration of the BDCs into the mainstream foreign exchange market has not only demystified illegal economic behaviours such as hoarding, rent seeking, round tripping and FX holding position, but also led to the emergence of exchange rate convergence.”
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Gwadabe said that the stability in the exchange rate has already started to have a positive impact on the prices of goods and services.
For instance the price for international school fees has dropped by 15 per cent; cost of medical tourism has reduced by 20 per cent and prices of air fares for local and international trips dipped by 25 per cent.
Describing the ongoing market development as revolutionary, Gwadabe said stable naira will attract more foreign portfolio inflows to the economy.
Interestingly, the apex bank doesn’t seem tired of pulling stunts, judging by the way and manner it has been churning out policies with a drop of a hat lately, a development described in some quarters as morale boosting of some sorts.
However, cautious considerations need to be taken into account. Nigeria faces structural challenges such as inadequate infrastructure, corruption, and policy uncertainties.
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Addressing these challenges requires long-term reforms and sustained efforts, which may impact the Naira’s stability in the long run.
Additionally, the Naira’s positive rally against the Dollar is influenced by global economic conditions, including the policies of major economies and international trade dynamics.
Any adverse changes in these factors can potentially reverse the Naira’s gains. Moreover, sustaining the Naira’s positive rally necessitates prudent fiscal management and adherence to sound economic policies. Any lapses in fiscal discipline can undermine the stability of the Naira and erode investor confidence.
In conclusion, while the Naira’s positive rally against the Dollar is undoubtedly a positive development, cautious optimism is warranted.
The current positive momentum can be seen as a stepping stone towards economic stability and growth. However, sustained efforts and reforms are crucial to ensure the Naira’s long-term resilience.
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The Nigerian government must continue diversifying the economy, addressing structural challenges, and promoting fiscal discipline.
Only through these measures can the Naira sustain its positive rally and further strengthen its position against the Dollar, contributing to the overall economic well-being of Nigeria and its citizens.
Pray, can the upward rally of the naira remain uptick? Time will tell!