Nigeria’s central bank has been struggling to stabilize Nigeria’s currency exchange rate because of historical low crude prices and the shutdown of economic activities in major cities of Nigeria as a result of the coronavirus pandemic.
The onslaught of Covid-19 lockdown has begin to manifest on businesses and disrupted human activities of people to contain, as the naira continue to nosedive and depreciate. Months ago Nigeria’s central bank devalued the naira against the dollar but is still under pressure to devalue the naira even further amid a scarcity of U.S dollars and poor export earnings.
However,the depreciation is a clear indication of the supply gap that currently exists in the foreign exchange market. Demand is high but supply is scarce to stabilize exchange rate. As things stand now the Central Bank is struggling to support the exchange rate as it did in 2017 when it newly introduced the Investors’ & Exporters’ (I&E) window. Back then, oil prices picked up and the government also received proceeds from its Eurobond offers.
The Central Bank’s expensive rate induced monetary policy also helped keep foreign dollars within Nigeria. The situation has changed from then as oil prices remain depressed and the economy is still reeling from the Covid-19 lockdowns. According to our source,it is most likely the Central Bank is going to devalue the naira if things remain the same.And the implications are that businesses that rely on foreign inputs with significant dollar demand will either have to pivot sourcing locally or go bankrupt.