New report, expert say naira to continue to fall in official market until 2025

There is may not relief for the naira as the Economist Intelligence Unit (EIU) has predicted doom for the naira in the next three years.

The research firm said the official exchange rate will weaken to N1,068 to a dollar between 2023 and 2025.

Nigeria to experience forex losses until 2025

The company stated in its report for Nigeria that the country will continue to experience currency losses due to the massive size of the black market and the country’s low reserves.

The EIU revised its exchange rate forecast to a more considerable devaluation in 2025 to reflect the widening disparity between the official and parallel exchange rates.

The report predicted Nigeria would try to merge the exchange rate windows that year. EIU said: “We have adjusted our average exchange-rate forecast for that year to N1,068.3:US$1, from N914.4:US$1 previously.

As our forecast for continued currency losses over time has not changed, the projected rate is also now weaker for later years.

A chartered banker, Uzochukwu Okewu, agrees with EIU, saying that the size of the country’s Forex reserves is hugely affecting the naira. He said that investors, especially portfolio investors, consider the size of a country’s FX reserves before investing.

“When investors come, they first consider your reserve's size if they want to pull their resources. So, now Nigeria’s reserves are abysmal, hurting the naira significantly.

“The EIU projection is on point because Nigeria is not earning enough Forex to be a buffer against depreciation. So, the naira is taking all the hit from a depleted reserve,” he said.

Foreign exchange scarcity affecting naira performance

Nigeria has been battling acute Forex scarcity, impacting the naira and living standards.

The Forex market received a respite a few weeks ago when the Nigerian government reportedly pumped $7 billion to offset Forex backlogs.

Okewu said the move boosted FX liquidity and relieved the embattled naira.

“We all saw what enough liquidity can do to a currency. When the country provided Forex for the banks to offset backlogs, the naira rebounded by as much as 20%, but as soon as that dried up, the naira began to tumble again,” he said.

The local currency plummeted to its lowest in the official market on Thursday, November 9, 2023, hitting nearly N1,000 per dollar, the weakest in naira’s history.

Analysts believe the lack of Forex liquidity weakens investor confidence and drags the naira further down the hill.