With a gap of N284 between the official exchange rate and the parallel market rate, analysts at Cordros Research said the Central Bank of Nigeria (CBN) would not devalue the naira any time soon, even as they warned that the lack of flexibility in the foreign exchange market could lead to further misalignment in rates.
The naira, which closed at N461.67 to the dollar last week on Friday on the Nigerian Autonomous Foreign Exchange (NAFEX), also known as the investor and exporter window, has seen a depreciation in value to N745 to the dollar in streets. .
In addition, banks had stopped allowing their customers to use their naira-denominated cards to settle international transactions due to currency shortages.
This was stated at the end of last year by the governor of the Central Bank of Nigeria, Godwin Emefiele, who will continue to support the naira by intervening in the foreign exchange market.
Cordros analysts in their 2023 outlook say they do not expect the central bank to devalue the naira at the official end of the market. “We don’t see the current CBN administration devaluing the currency, barring a new market-oriented tax administration. However, for a credible reform and policy framework, we are inclined to devalue the currency in official forex markets and improve flexibility and communication in the forex framework.
“Without flexibility, it’s only a matter of time before currency mismatches build up again, creating more pressure to implement another wild currency devaluation.”
The devaluation of c and followed by periodic communications would allow the local currency to depreciate according to the fundamentals it will be sustainable as power changes hands in 2023”.
The analysts added that the CBN may allow the currency to depreciate annually based on the assessment of the external balance after accounting for inflation, net foreign assets, the current account gap and growth. “Clear communication and commitment to this framework will be crucial to restore credibility and significantly reduce currency volatility.”
Meanwhile, the 30-day moving average of the country’s external reserves increased by nearly $100 million in the first three days of the year, according to data from the CBN website.
Of $37,069 million that was the first business day of the year, January 3, 2023, the reserves were located at $37,152 million as of January 5, 2023.
This is after $3.43 billion was depreciated during the year 2022 compared to $40.52 billion at the beginning of last year.