Will naira recover lost ground?

The Nigerian naira has been showing signs of strength against the U.S. dollar, thanks to the Central Bank of Nigeria's intervention in the forex market. The CBN sold around $72 million to banks at a rate ranging from 1,500 to 1,530 naira. Additionally, the CBN resumed dollar sales to Bureau de Change operators at a rate of 1,450 naira. This intervention aims to achieve a market-determined exchange rate for the naira, but challenges persist. Paul Alaje, Senior Economist at SPM Professionals, shares insights on the current state of the naira and the potential moves by the Monetary Policy Committee (MPC). Alaje acknowledges the efforts made by the CBN to float the naira and allow it to find its level. However, he points out that continuous demand for dollars against limited exports has hindered the naira's stability. The dependence on imports, especially finished products, amplifies the pressure on the naira. Alaje suggests sending positive signals to the market, similar to previous interventions that temporarily stabilized the naira at lower levels. While the CBN is committed to supporting the naira, Alaje highlights key limitations. Nigeria's import-heavy consumption and subpar oil production restrain the CBN's ability to bolster the naira significantly. Alaje calls for strategic measures to enhance crude production and facilitate exports to reduce import dependency and boost foreign exchange inflows. He stresses the need for policy coordination and collaboration to align efforts for a more impactful outcome. The conversation shifts to the upcoming MPC meeting, where Alaje anticipates discussions on inflation and foreign exchange policies. He critiques the conventional approach of raising the NPR to curb inflation, emphasizing that the root cause lies in food inflation. Alaje underscores the importance of addressing supply-side constraints to combat inflation effectively. He warns against solely relying on interest rate adjustments without tackling the core issues of inadequate supply and high unemployment rates. In conclusion, while the naira shows signs of improvement, sustained efforts are essential to overcome the challenges posed by import dependency, limited exports, and inflation dynamics. Collaborative policy measures, strategic interventions in key sectors, and a holistic approach focusing on supply-side improvements are pivotal to achieving a more stable and competitive exchange rate for the naira.