Nigeria’s exchange rate appears well on track to hit N400 by Monday if the CBN continues to delay on its plans to introduce its new flexible exchange rate regime. According to Nairametrics data the Naira, has depreciated from about N345 on the first day of June to about N372 at the close of trading on Wednesday. Our data is based on price intelligence gathered from black market operators in Lagos.
Within a period of just eight days the Naira has lost about N27 or 8% as speculators scramble for any dollars available in the market, The reason for the depreciation is attributed to the continuous delay in the release of details of the CBN’s “Flexible Exchange Rate Policy”. The CBN Governor had two weeks ago informed Nigerians that it will reconsider its flexible exchange rate, a move it hopes will hep Nigeria ovoid a recession.
On the basis of the current depreciation we believe we are seeing the same pattern that occurred back in February when the Naira depreciated to as low as N410. The currency eventually rebounded as supply started to outstrip demand after it seemed as if the CBN was not looking to devalue.
We also observed that in each of the prior events, a steep drop in the value of the Naira is mostly due to a pronouncement by the CBN. Just like then, the CBN informed investors it was going to introduce a flexible exchange rate policy on lyfor them to inject a suspense that has now transformed into speculation,
A 10% drop in exchange rate will result in a price over N400 which is an additional N28 to the current price. This also looks quite achievable within the current scheme of things.
For speculators looking to make a quick buck on this, it will be wise to remember what happened the last time when most people rushed it at a price of over N400. The same trend is occurring and we expect it will also fizzle out eventually.