The naira is projected to stabilize against the US dollar by the end of the fourth quarter of 2024, finishing the year strongly.
This projection comes from a recent macroeconomic report by First Securities Discount House (FSDH) Merchant Bank Ltd, titled Priorities for Economic Stability in the Short-Term.
The report also forecasts a rise in foreign exchange (forex) inflows, driven by increased policy rates and heightened FX interventions from the Central Bank of Nigeria (CBN).
Additionally, the report highlights the anticipated positive impact of the Dangote Refinery’s operations, which are expected to significantly alleviate pressures on the forex market.
Throughout 2024, the naira has struggled to stabilize against the dollar amid ongoing market volatility, with its last significant appreciation occurring in March when it neared the N1,300 range.
Year-to-date, Nigeria’s exchange rate has depreciated by 69.9%, starting at N907.11/US$ in January and sliding to N1,541.52/US$.
After opening in January, the naira depreciated sharply, reaching a peak of N1,616.53 in February—a historic high. However, in March, it made a temporary recovery, closing around N1,303, driven by a wave of positive market sentiment.
In early April, the naira briefly crossed below the N1,100 mark, even closing the second week at N1,002. However, since that period, the currency has steadily weakened, reaching N1,668.97 by the end of September.
The report highlights an improvement in forex inflows over recent quarters, though pressures on the foreign exchange market remain. Nigeria’s economy posted a trade surplus of US$8.9 billion for FY 2024, a 45.2% increase from the US$6.1 billion surplus in FY 2023.
The high-interest-rate environment has also attracted increased portfolio investment inflows into the country.
However, the report indicates that these inflows have had only a limited impact on the naira’s ability to appreciate against the dollar.
What to expect
The report emphasizes that the commencement of operations at the Dangote Refinery will play a crucial role in easing forex pressures.
With petroleum products accounting for 30-40% of Nigeria’s import bills, the refinery’s full-scale operations are expected to substantially reduce these import costs, thus helping to stabilize the naira in the near term.
In addition, the Naira for Crude Initiative, launching on October 1st, 2024, is expected to provide further relief to Nigeria’s forex challenges.
The report maintains an optimistic outlook for the naira in the fourth quarter of 2024, suggesting a more stable exchange rate as these interventions take effect.
