The CBN has been accused of late of basically worsening Nigeria’s currency position as it refused to devalue when it probably should have about a year ago. Devaluing now, though seen as belated, is still welcomed because it is still viewed as better than not doing it at all.
The Central Bank of Nigeria is expected to reveal details of its new “Flexible Exchange Rate” policy any time this week. It is perhaps the most anticipated news this week because of the effect it will have on the exchange rate. We could well see an exchange rate of at anywhere between N250 – N300 to the dollar at the interbank according to several analysts predictions.
Figuring out what price the dollar will be priced at is quite difficult which is why analysts have decided to rely on a wide band such as the one we mentioned above. Since we do not know exactly what the CBN is thinking we decide to look at what the Naira traded as the last time oil price traded at the $50 level.
From our records, the black market price for the Naira was between 235 and N240 back in July 2015 when the oil price was around the $50 band. The chart above indicates just about when Brent Crude prices started slipping down.
Things are quite different now as there are a lot more macro economic indicators that also affect market sentiments in determining price levels. For example, Nigeria’s external reserves was about $30 billion back in July 2015 compared to about $26.4 billion today. Nigeria also did not have the pent up demand (backlog) we currently have thought to be close to $5 billion. Also, imports seems to have dropped significantly in the first quarter of this year. Exports saw a decline of N671.1 billion or 34.6%, while imports declined by N122.4 billion or 7.8%. Nigeria’s import trade stood at N1,454.0 billion, at the end of Q1, 2016. This was 7.8% less than the value recorded in the preceding quarter N1,576.4 billion.
Imports for the month of July 2015 was about N624 billion while exports was about N880 billion thus a trade surplus for the month of about N256 billion. In March 2016, imports were about N453.3 billion compared to N282 billion in exports for the month showing how starkly things have changed since then.
However, it is poignant to note that the price of Brent still plays a major factor in determining the price of the dollar. At a price above $50 per barrel the only other factor that can negatively affect the value of the naira is perhaps the bombings in the Niger Delta. Ironically the unrest in the middle east seems directly correlated to the price of crude oil.