The International Monetary Fund has reported that the naira is showing signs of stabilization, attributing this to recent interest rate hikes and efforts by the Central Bank of Nigeria to address foreign exchange backlogs.
The IMF disclosed this in its latest Global Financial Stability Report, which was seen by OnlinePikin on Wednesday.
According to the fund, the CBN’s interventions to clear overdue foreign exchange obligations have played a critical role in stabilizing the currency.
The IMF report read, “Policy actions by local authorities have also resulted in positive developments; for example, in Nigeria, rate hikes and the clearing of overdue domestic central bank foreign exchange obligations have helped the naira show more signs of stability.”
However, the latest data from the FMDQ Exchange indicates that the naira fell slightly from N1,653.02 per dollar on Tuesday, October 22, 2024, to N1,654.09/$ on Wednesday, October 23, 2024, representing a marginal depreciation of 0.06 per cent.
Foreign exchange turnover also dropped significantly by 22.41 per cent, declining from $176.15m on Tuesday to $136.68m on Wednesday.
The IMF’s assessment comes amid ongoing efforts by Nigerian authorities to stabilize the foreign exchange market and improve liquidity.
However, the sharp drop in FX turnover reflects continued challenges in balancing demand and supply within the market.
The World Bank, in its latest edition of Africa’s Pulse, stated that the naira was among the worst-performing currencies in Sub-Saharan Africa in 2024.
As of the end of August 2024, the naira had depreciated by approximately 43 per cent year-to-date, making it one of the region’s weakest currencies alongside the Ethiopian birr and South Sudanese pound.
The depreciation of the naira is attributed to several factors, including surging demand for United States dollars in the parallel market, limited dollar inflows, and delays in foreign exchange disbursements by Nigeria’s central bank.
The World Bank’s report further highlighted that demand for dollars, driven by financial institutions, non-financial end-users, and money managers, has exacerbated the pressure on the naira.
It noted, “By August 2024, the Ethiopian birr, Nigerian naira, and South Sudanese pound were among the worst performers in the region. The Nigerian naira continued losing value, with a year-to-date depreciation of about 43 per cent as of end-August.
“Surges in demand for US dollars in the parallel market, driven by financial institutions, money managers, and non-financial end-users, combined with limited dollar inflows and slow foreign exchange disbursements to currency exchange bureaus by the central bank explain the weakening of the naira.”
This situation has persisted despite some foreign exchange market reforms introduced by the Nigerian government, including the liberalization of the official exchange rate that began in June 2023.