After the Central Bank of Nigeria (CBN) monetary policy committee lifted benchmark interest rates by 100 basis points to 17.50%, the Naira plummeted across the foreign exchange market.
The market, on the other hand, reacted negatively, with selloffs on the Nigerian Exchange occurring at the same time currency dealers reported an increase in demand for foreign currencies ahead of the deadline for accepting old naira notes for transactions.
Foreign currency has become limited as a result of ongoing demand from Nigerians – both individuals and companies. Nigeria’s central bank, the CBN, has minimal authority to upstream foreign currency. The capital control imposed by the central bank has raised the foreign exchange backlog.
Meanwhile, Broadstreet is skeptical that the local currency would rebound from its dramatic plunge throughout the market due to a lack of FX inflow supports. Despite the fact that the Nigerian government must raise oil production volume, variations in global crude oil prices continue to have an impact on foreign exchange inflows.
Currency analysts estimate the exchange rate to reach N500 on average in 2023, according to investment banking firms’ forecasts. The exchange rate in the foreign currency market for investors and exporters fell to N462 as demand for US dollars outstripped supply.
The parallel market, where the US dollar is readily swapped for local currencies, has witnessed the similar trend. The exchange rate fell by 0.13% to N749 from N748. Analysts believe that the new naira note will support the normalization of demand in the black market from February 2023.