Financial analysts at United Capital Plc have forecasted that the exchange rate will stabilize, trending between N1,423.26/$ and N1,550/$ by the end of 2024.
This projection was stated in their HY-2024 Economic Outlook Report, titled “Balancing Act: Nigeria’s Path to Economic Stability.”
The analysts noted that the outlook for Nigeria’s exchange rates in the second half of 2024 appears favorable, with the naira expected to stabilize and appreciate due to several positive economic developments.
The report highlights two critical factors contributing to this projected stability: the commencement of local petrol supply from the Dangote refinery in July, which will reduce the trade deficit in refined liquids, and sustained tight monetary policy measures aimed at narrowing the negative interest rate differential.
“Exchange rates are projected to stabilize, trending between N1,423.26/$ and N1,550/$ by the end of 2024,” the analysts stated.
Slowdown in headline inflation
They noted that other contributory factors include a slowdown in headline inflation and the World Bank’s $750 million disbursement which is expected to temporarily boost reserves and forex supply.
The analyst stated that these trends indicate a continued increase in dollar supply, enhancing investor confidence and supporting the naira’s value in the coming months.
Volatility in H1 2024
According to them, the Naira has experienced notable volatility in H1 2024, with much of the weakness attributed to a devaluation in January 2024 when the Central Bank of Nigeria (CBN) revised its methodology for setting the official exchange rate.
“The currency weakened by 34.33% in the official market, from N988.46/US$ on January 2, 2024, to N1,505.30/US$ by June 28, 2024, and fell by 21.05% in the parallel market, from N1,200/$ to N1,520/$ over the same period,” they said.
They explained that the adjustment has seen improvements in the elimination of the premium between the official and parallel markets, and improved market turnover, indicating some reform progress.
The analysts added, however, that the naira continued to weaken, losing 7.3% against the US dollar post-devaluation due to high dollar demand for fund repatriation after the CBN cleared a backlog of foreign exchange requests, coupled with the ongoing dependency on imported petrol.
They said that the sustainability of these measures hinges on improved capital inflows through improved crude oil production and enhanced export revenues replenishing foreign reserves.
“Should these vital inflows fail to materialize, the efficacy of CBN interventions may wane over time, leaving the Naira vulnerable to further depreciation in the absence of robust external support,” he said.
Nigeria’s external reserves
They also noted that the outlook for Nigeria’s external reserves in the latter half of 2024 appears promising, supported by multiple positive factors.
The analysts said continued improvements in remittances, stability in the oil sector, and substantial inflows from the World Bank, including a $1.50 billion budget infusion, are anticipated to bolster reserves.
Additionally, they said potential Eurobond issuances and FX-denominated local debt will further enhance the Central Bank of Nigeria’s (CBN) ability to stabilize the foreign exchange market.
“Looking ahead, growth in capital imports is anticipated, driven by high interest rates and the CBN’s monetary tightening. Fiscal sustainability concerns may temper foreign investor enthusiasm, and FDI inflows are expected to remain modest without significant infrastructural reforms,” they said.
