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Naira Drops Against the Dollar as Market rates convergence loom

Naira Drops Against the Dollar as Market rates convergence loom

Naira Drops Against the Dollar as market rate convergence looms
  • The Naira experienced its biggest drop since Feb, 2021.
  • Maintaining its 9 year down trend since 2012.
  • Recall the CBN has devalued the Naira three times since 2020

The Naira fell by 2.2%- a record low since Feb 3, to 424.27 against the dollar on Friday, 31st of December, 2021.

The CBN, Nigeria’s Apex bank, has been selling between 437-444 per dollar to investors since October. Price has hovered around the 411-415 mark for some time.

However, in a recent mail by Omotola Abimbola, an analyst at Chapel Hill Denham, Lagos. “The spot rate has strangely been around the 411-level”. Omotola sees the Naira as 12% more than its real effective exchange rate, and that needs to be reflected.

“the currency is overvalued by around 12% and that should be an indication of the adjustment we need to see”

Note that Nigeria manages demand for dollar by operating different rates for investors and exporters, government, small businesses, and travelers. This has attracted calls from the International Monetary Fund, and the world bank for a merger of the multiple rate. However, Nigeria has shrugged them off.

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With the continuous fall of the naira, could there be convergence of all exchange rates?

Cheta Nwanze, a lead partner with SBM Intelligence, describes such situation as a” huge political risk”. Especially in a pre-election year.

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