TheCable

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.