A year after an eyewatering slide against the dollar, the naira is enjoying a rare run of stability, and analysts expect it to last.
Nigeria’s battered currency has lost 70% against the greenback since foreign exchange controls were relaxed in 2023, including a steep depreciation 12 months ago.
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But its performance since December tells a different story, with the naira holding in a narrow range roughly between 1,550 and 1,520 per dollar.
“We’re actually quite bullish on the naira, and we think that the naira can stabilise at 1,500, but potentially even stronger,” Deutsche Bank’s chief South African and sub-Saharan Africa economist Danelee Masia told Bloomberg Television’s Jennifer Zabasajja.
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She noted Nigeria has raised dollar reserves, citing the $2.2 billion eurobond it sold on Dec. 2, while cautioning it remains vulnerable to the price of crude.
The naira’s slide was a deliberate result of relinquishing its longstanding fixed peg against the dollar after President Bola Tinubu took office in May 2023
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Holding the currency at an artificially strong level was blamed for distorting the economy and harming the nation’s exports.
As a result, the change was welcomed by foreign investors and the International Monetary Fund, even as it drove up the price of imports and fanned a cost-of-living crisis.
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Since then, while the Central Bank of Nigeria does still step into the currency market from time to time to add liquidity, intervention is not viewed as the reason for recent naira stability.
Ayo Salami, chief investment officer at Emerging Markets Investment Management Ltd. in London, said monthly dollar inflows into Nigeria were at $2.5 billion from foreign direct investment, versus the Central Bank of Nigeria’s own supply of $280 million.
“With most of the flows in the forex market coming from non-CBN-related sources, I think it would be reasonable to consider the current FX rate as real,” he said, arguing that Nigeria’s high interest rates are attractive to offshore capital.
“If rates remain above 15%, this is likely to be sufficient to retain the FDI flows and keep the forex rate stable,” he said, adding that current naira levels around 1,550 per dollar “is a reasonable reflection of supply and demand.”
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The CBN has raised interest rates to a record 27.5% to combat inflation, which stood near a 29-year high of 34.8% last month, and is expected to keep policy tight after its next meeting on Feb. 17-18.
Emele Onu/Bloomberg