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CBN Devalues Naira Amid FX Supply Woes?

By Adedapo Adesanya

There has purportedly been a fresh round devaluation of the Naira by the Central Bank of Nigeria (CBN) – a second one since President Bola Tinubu ascended the presidency in May 2023.

On Monday, the Naira fell by 51 per cent to a low of N1,346 per Dollar in the official market segment of the foreign exchange (FX) market, the Nigerian Autonomous Foreign Exchange Market (NAFEM).

According to a circular from FMDQ seen by Business Post, there has been a revision of the methodology used to set the exchange rate.

The change in pricing methodology was aimed at addressing “recent fluctuations in the FX market and to ensure that rates accurately reflect market conditions while upholding price formation and transparency.”

“In alignment with FMDQ Securities Exchange Limited FMDQ Exchange or the Exchange‘s dedication to maintaining transparency and adaptability in response to the evolving dynamics of the market, the Exchange has updated the FX Rates Pricing Methodologies,” it said.

These revisions are focused on enhancing the accuracy and reliability of the NAFEX and NAFEM rates determination process, with a focus on data availability and integrity involving a rigorous data validation process, including tolerance checks which shall be applied by FMDQ Exchange, subject to internal policies and procedures.

“These measures aim to ensure that NAFEX and NAFEM rates accurately reflect market conditions while upholding price formation and transparency,” the notice added.

The devaluation brings the local currency within the same range as it is selling at the other markets including the black market and the electronic Peer-to-Peer (P2P) FX window, which is around N1,420 and N1,450.

In June 2023, the Central Bank of Nigeria liberalised the currency regime in an attempt to attract inflows and improve liquidity.

However, due to supply FX shortage, this has not happened with the country unable to clear its FX obligations put at $7 billion owed across multiple sectors including manufacturing, energy, aviation, and banking.

The apex bank announced that an additional $500 million has been settled, weeks after the sum of $2 billion was made available to settle part of the backlogs.

The CBN  also promised to boost supply to clear a backlog of foreign-exchange demand.

Analysts at Standard and Poor’s (S&P) Global Ratings  warned of the continued Naira depreciation in 2024, saying it will be triggered by Nigeria’s broadly flat reserves which limits the supply of the much needed FX. It added that higher import costs, backlogs of FX transactions, and lower FX receipts stemming from oil exports will constrain growth in the country’s reserves.

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