The Nigerian naira is expected to stabilize against the US dollar by the fourth quarter of 2024, according to a new macroeconomic report from First Securities Discount House (FSDH) Merchant Bank Ltd. The report, titled Priorities for Economic Stability in the Short-Term, forecasts a positive outlook for the naira, suggesting that it will finish the year strongly after months of volatility.
FSDH predicts that increased foreign exchange (forex) inflows, driven by higher policy rates and the Central Bank of Nigeria’s (CBN) interventions, will contribute to stabilizing the currency. The report also points to the start of operations at the Dangote Refinery as a major factor that could relieve pressure on Nigeria’s forex market.
Naira’s Struggles in 2024
Throughout 2024, the naira has faced significant challenges, fluctuating in value against the US dollar. The currency’s last notable gain occurred in March when it appreciated to about ₦1,300 per dollar. However, market conditions have remained unpredictable, with the naira losing much of its value over the year.
Since January 2024, the exchange rate has dropped by 69.9%, starting at ₦907.11 per dollar and falling to ₦1,541.52 per dollar. The naira’s most significant depreciation came in February, when it hit an all-time low of ₦1,616.53. Despite a brief recovery in March, when it improved to ₦1,303, the currency has since continued to weaken. By the end of September, it had declined further to ₦1,668.97 per dollar.
Forex Inflows and Economic Indicators
The report highlights that despite the pressure on Nigeria’s forex market, forex inflows have improved over the past few months. Nigeria’s economy reported a trade surplus of $8.9 billion for 2024, a 45.2% increase from the $6.1 billion recorded in 2023.
According to FSDH, the country’s high-interest-rate environment has attracted more foreign investment, particularly in portfolio investments. However, these investments have only had a limited impact on strengthening the naira, as demand for foreign currency continues to outweigh supply.
Key Factors That Could Stabilize the Naira
One of the most important factors expected to stabilize the naira is the Dangote Refinery, which is set to begin full-scale operations soon. The report explains that petroleum products account for 30-40% of Nigeria’s import bills, so the refinery’s production could significantly reduce the country’s need for imported fuel. This would ease demand for foreign exchange and help the naira recover.
In addition, the report mentions the upcoming *Naira for Crude* initiative, scheduled to launch on October 1, 2024. This program is expected to offer further relief by reducing the need for forex to pay for crude imports, which could also help support the currency.
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Looking Ahead
Despite the naira’s struggles in 2024, FSDH’s report maintains an optimistic outlook for the final quarter of the year. It suggests that as these economic measures take effect, the naira will stabilize and regain some of its lost value.
“The commencement of operations at the Dangote Refinery will be crucial in easing forex pressures,” the report states, adding that “the expected reductions in import costs will play a key role in helping to stabilize the naira in the near term.”
The report concludes by noting that Nigeria’s economic policies and interventions, particularly in the foreign exchange market, will be critical in determining the currency’s performance in the months ahead.