- The naira ended H1 2024 on a bad note as it was rated as the worst-performing currency within the period
- Timeline of decline on the official window shows the naira started the year at over N1,000/$ and sustained the upward trajectory to close H1 at over N1,500/$
- CBN’s efforts to curb volatilities and ensure liquidity within the period proved abortive
As the first half of 2024 wound up, Nigeria’s currency was rated as the worst-performing currency by Bloomberg alongside Egypt’s pound and Ghana’s cedi. This is not surprising given that by the close of business on Thursday, June 27, it weakened for nine straight days to N1,510/$, according to data from FMDQ.
The losses suffered by the naira caused its decline to 40 per cent since the beginning of the year.
To buttress this, Bloomberg wrote,
“The losing streak is the longest since July 2017 and takes the decline since the start of the year to 40 per cent.
“The naira’s performance is the worst among global currencies tracked by Bloomberg beside that of the pound in Lebanon, which is undergoing an economic crisis and witnessing dollarisation.”
The reason for the naira’s performance in recent times is not far-fetched, especially since the unification of all segments of the foreign exchange market, known as the floating of the naira, in June 2023 by President Bola Tinubu’s administration, a move that has seen the currency make upheaval movements in the market.
According to the Central Bank of Nigeria (CBN), the naira's floating is to allow for a free market in which market forces determine the rates per time on a willing-buyer-willing-seller basis.
This policy, however, has seen the naira make a steady increase against the dollar, pounds and other convertible currencies, soaring to a N1,900/$ high in the parallel market in February.
Timeline of decline at the official window
As of December 29, the naira closed 2023 at N907.11/$. In January, it moved for the kill, skyrocketing to over N1,000/$, taking a dip mid-month, and soaring further to close the month at N1,348.62/$ at the official window.
February saw worse declines as the currency depreciated to N1,665.50/$ on February 23 before stablising by the end of the month. The currency made its biggest recovery in March as it went from N1,548.25/$ at the beginning of the month to N1,309.39/$ as of March 28.
In April, the naira saw some level of stability, swinging between N1,136/$ and N1,339/$ before closing the month at N1,219.11/$.
The currency volatility continued well into May as the exchange rate fluctuated between N1,354/$ and N1,533/$ before closing the month at N1,485.99/$.
Despite shedding by 1.3 per cent in June, having oscillated between N1,473/$ and N1,510 before settling at N1,505.30/$ by the end of the month, the naira was somewhat stable in the month.
It will be recalled that TheRadar had reported analysts’ prediction that the naira would trade at N1.415.78/$ by the end of the second quarter (Q1) of 2024, owing to forex volatility and inflationary pressures.
They said that the prediction, which is N115.35/$ higher than the amount the naira traded in Q1 2024, indicates ongoing risks for investors. They added that Nigeria’s macroeconomic landscape will be characterised by lingering inflationary pressures, heightened currency risk, sluggish GDP growth, and low consumption as disposable income shrinks.
The naira ending Q2 at above N1,500/$, a figure higher than was predicted, shows the extent of volatility it suffered and poor performance against other convertible currencies.
CBN policies have not helped the naira
In efforts to stabilise the naira, CBN rolled out a number of policies. First, the CBN told banks and International Money Transfer Operators (IMTOs) to halt dollar payment of in-bound transfers to customers in Nigeria.
In a revised guideline to IMTOs and banks on January 31, 2024, the CBN said all inbound money transfers to Nigeria will be paid only in naira through a bank account or in cash at the prevailing rate in the Nigerian FX market.
To allow for flexible currency quoting and to address suspected cases of FX speculations and hoarding, the CBN, in January, removed the exchange rate caps quoted by IMTOs.
The policy required IMTOs to quote rates within an allowable limit of -2.5 per cent to +2.5 per cent, based on the previous day’s closing rate of the Nigerian FX market.
To ensure forex stability and to curb alleged cases of forex speculation and hoarding by banks, the CBN had mandated deposit money banks (DMBs) to sell off excess dollar stock by February 1.
At the peak of the forex crisis in February, the Office of the National Security Adviser (ONSA), the CBN and key law enforcement agencies had collaborated to clampdown on forex speculators in the country, leading to the arrest of two executives of a crypto exchange platform, Binance.
In H1 2024, the CBN sold forex to Bureau de Change (BDC) operators BDCs at least four times while directing the operators to sell at a spread not more than 1.5 per cent above the CBN rate in efforts to save the naira.
On March 20, the CBN announced that it had cleared valid forex backlog to the tune of $7 billion to ensure forex liquidity.
For International Oil Companies (IOCs), the CBN had issued a guideline that stopped them from remitting 100 per cent of their inflows but to sell 50 per cent balance of repatriated export proceeds to authorised forex dealers.
Another masterstroke by the apex bank is its policy of Monday, June 24, granting IMTOs access to naira directly from the CBN window or through Authorised Dealer Banks (ADBs) to settle transactions for the sale of FX in the market.
It said the measure is part of its commitment to enhancing local currency liquidity, ensuring the smooth functioning of the FX markets, improving formal remittance channels and “widening access to local currency liquidity for the settlement of diaspora remittances.”
CBN’s recapitalisation policy got banks running helter-skelter for funds
Meanwhile, TheRadar reported that deposit money banks (DMBs) in Nigeria had been busy making efforts to meet the new recapitalisation policy of the CBN.
The policy stipulates a 24-month window, from April 1, 2024, to March 31, 2026, for commercial, merchant and non-interest banks to upwardly review their minimum capital base depending on their licence authorisation.
