Naira may depreciate further during yuletide – Report

It has been projected that demand for foreign exchange during the festive season will worsen the depreciation of the naira.

This projection was made by analysts at Meristem Securities Limited in their Inflation Report which was released on Tuesday.

In the report, analysts who reviewed October’s inflation figures, which stood at 33.88 per cent, above their projection of 33.48 per cent, worried that the FX demand during the festive season would compound the woes of the naira and therefore the inflation rate.

They said, “In the near term, food prices are expected to rise further, fueled by heightened transportation costs and increased consumer demand ahead of the festive season. Additionally, projections from the Nigeria Hydrological Services Agency warn of potential flooding in states along the River Niger, which could disrupt harvests and further strain agricultural output, exacerbating inflationary pressures on food prices.

“Looking ahead, we anticipate further upward pressure on the core index, largely driven by rising transportation costs stemming from elevated fuel prices. Additionally, heightened demand for foreign exchange during the festive season is likely to exacerbate the depreciation of the Naira, further inflating the prices of goods and services within the core inflation basket.”

There have been multiple projections about the naira in recent times with most of it projecting a further weakening before strength.

This month, the naira performed poorly in all market segments despite foreign reserves reaching their highest level in 32 months.

The local currency is expected to weaken to N1,993/$ by 2028 according to a recent analysis by BMI, a division of Fitch Solutions.

The last Business Expectations Survey released by the Central Bank indicated that respondents expect the naira to depreciate in the current month, the next and the next three months but appreciate in the next six months.

Against that projection, a renowned economist, Bismarck Rewane, has projected that the naira will strengthen in January 2025 compared to its current weak trading position.

Speaking during a presentation at the Lagos Business School, Rewane, who is also the Managing Director of Financial Derivative Company, affirmed, “There is no economic justification for the naira to be trading at less than 30 per cent of its fair value in less than twelve months.”

Rewane added that the exchange rate is the major cause of inflation in Nigeria, noting that a partial recovery of the naira will not only help reduce inflation but will curb money supply saturation in the money market.

Meanwhile, on the official window on Monday, the naira weakened by 2.31 per cent or N38.12 to N1690.37/$ compared to 1652.25/$ in the previous trading session.

Also, the daily turnover stood at $173.14m, indicating a 42 per cent decline from $296.63m on Friday.