Nigeria’s national currency, the naira, is set to experience appreciation in value against major international currencies, especially the United States dollar, in view of the new directives of the Central Bank of Nigeria (CBN) to International Oil Companies (IOCs), economic experts at the Financial Derivatives Company (FDC) have said. This forecast was based on the assumption that the directives of the CBN will increase dollar supplies to authorised forex dealers in the country.
Recalled that on May 31, 2024, the CBN, through a circular with reference number TED/FEM/PUB/FPC/001/017 explained the purpose of the earlier directives given to IOCs to the effect that 50 percent of IOCs’ repatriated proceeds could be used to settle financial obligations in Nigeria.
“The 50% balance of the repatriated export proceeds could be used to settle financial obligations in Nigeria, whenever required, during the prescribed 90-day period,” the CBN said in a circular to banks in the country.
It further listed the eligible transactions for which the 50 percent balance of their proceeds could be used for, and these include petroleum profit tax, royalty, domestic contract invoices, cash call, domestic loan principal and interest payment, transaction taxes including the Nigerian Content Development (NCD) levy, education tax, and forex sales at the Nigerian Foreign Exchange Market.
The naira has oscillated against the US dollar in recent times. According to the exchange rates data provided by the CBN, the naira-dollar exchange rate was N1330.76 as of the end of March 2024.the naira exchange rate remained almost the same as at the end of April. It depreciated to N1483.48 to the US dollar as at the end of May 2024. And on June 6 2024, the naira traded at N1485.82 to the US dollar at the NFEM market.
The naira also depreciated against the Chinese Yuan. As of the end of March 2024, the exchange rate of naira/yuan was N184.11/Yuan. It became N190.26/Yuan by the end of April 2024. The naira further depreciated to N204.90/Yuan as of the end of May 2024. And by June 6, 2024, the naira was exchanged for N205.07 to the Yuan.
“The forex market is about to witness a turnaround as the CBN continues its efforts to bring stability in the market. Recently, the CBN permitted IOCs to sell 50%of repatriated export proceeds directly to authorized FX dealers and eligible users of foreign exchange. This move is aimed at increasing forex availability in the market, thereby aiding in exchange rate stabilization,” FDC stated.
The research firm added that naira will likely trade within the band of N1,350 to N1,450/$, through June. But due to lags, the positive impact of the CBN position will come later towards the end of 2024 and beyond.
In the event Nigeria’s naira appreciates against international functional currencies, the Nigerian economy stands to gain benefits that include reduction in the cost of imported inputs for domestic production, reduction in the cost of living for Nigerians, boost in consumer spending, that will further stimulate economic growth, job creation, and lower prices of imported goods, which will further increase the standard of living in Nigeria.
As a follow up to the above, the experts said a strong naira will lead to reduction in borrowing costs for consumers, businesses and governments, improved asset quality of banks due to high performing loans, among others.
