Nigerian naira forecast: NGN remains searching for bottom as fears of devaluation

The Central Bank of Nigeria (CBN) is attempting to consolidate the system of exchange rates into a single rate, and as a result, the Nigerian naira (NGN) has already declined by over 4.5% against the US dollar (USD) this year. Devaluation speculation is being fueled by rising inflation and a lack of foreign currency reserves.

What is a naira in Nigeria？

The Federal Republic of Nigeria's national currency is the Nigerian naira (sign: NGN). The ratio of Nigerian naira to US dollars, or USD/NGN. If USD/NGN is 440.00, then NGN440 is equivalent to $1.

The CBN is in charge of naira issuance and maintaining price stability. A tightly controlled official rate currently dominates the bank's range of exchange rates. This limits access for a lot of companies and people and reduces demand on the black market.

What elements affect the naira in Nigeria？

The CBN sets and regulates the currency rate, making central bank activities a major factor in the naira's performance. The naira's price movement can also be impacted by internal politics, inflation, and economic growth.

Foreign reserves are crucial because they are the assets kept by a central bank that support stable domestic currency values, ongoing liquidity, and investor confidence. Key economic cornerstone of Nigeria's economy is oil and gas. Oil represents over 80% of the country's foreign exchange revenues and 40% of its GDP. The result is The naira is susceptible to fluctuations in oil prices as well as output levels.

NGN's previous performance 5-year USD/NGN chart

The USD/NGN pair traded at about 200.00 in 2016. The naira significantly declined to 284 versus the dollar in June before concluding the same year at over 300.

The pair kept pushing themselves higher, crossing the 350 mark by the middle of 2017, and then crossing the 400 mark in May 2021.

The USD/NGN began 2022 at about the 411 level and has since increased by nearly 7% to trade at 442, a new high.

Recent events driving the naira The Nigerian naira is currently experiencing a currency crisis and rampant inflation, with a 17-year high of 21.1%, declining foreign currency reserves, and a restricted capacity to service debt.

Nigeria uses a system of several exchange rates to avoid a complete devaluation of its currency. For official transactions, a stronger pegged rate is used, and for non-government transactions, a weaker rate.

Despite requests to stop the regime from the World Bank and the International Monetary Fund (IMF), the CBN has continued with it. Additionally, despite a premium of nearly 77% between the official spot rate and the unofficial black market, where US dollars are freely transacted.

The official-parallel spread is getting wider, which means the naira is overpriced.

The IMF encouraged the CBN earlier this month to reduce its involvement in the foreign exchange market and allow banks to determine the naira's exchange rate.

According to the IMF, implementing this adjustment would put an end to disruptive speculation about a prospective devaluation, which exacerbates the instability of the currency. The Nigerian naira has undergone three devaluations since 2020, they claimed. For instance, the CBN depreciated the naira by 7.6% against the US dollar in 2021 as part of its transition to a single exchange rate system.

The likelihood that the naira may devalue once more in 2023 following national elections is growing. 13 respondents to a recent Bloomberg poll said they anticipate the CBN to depreciate the naira after the election in February.

On the magnitude of the probable depreciation, analysts differ. The median forecast increased the naira to 533 by 20%. The outcome of the election will also affect how much the value of the naira could decline. According to Daniel Sodium, an analyst at Frontier View: While devaluation could cause inflation to increase even more, it may also be good news for the fiscal balance because domestic spending is in naira but a significant percentage of oil revenue, a crucial export, is paid for in dollars.

Forecast for the Nigerian naira: 2023 and beyond

Nigerian naira: Opinions of analysts

In his most recent prognosis for the Nigerian naira, Bank of America economist Tatonga Rusike was pessimistic. He predicted that during the next six to nine months, the value of the naira relative to the dollar might fall by about 20%. Rusike estimated that NGN traded above fair value by about that much. The USD/NGN would reach 520 as a result.

Forecast for USD/NGN

The Nigerian naira projection from Trading Economics predicted that the currency will continue to decline as of November 22. By the end of the current quarter and within a year, they predicted that the USD/NGN may be at 443.09 and 445.87, respectively.

The Nigerian currency may fall in the near future, according to the algorithm-based forecaster Wallet Investor's NGN forecast. USD/NGN was projected to begin 2023 at 445.32 and end the year at 467.62. In the longer run, the rate was predicted to increase to 512.54 by the end of the year in its US dollar Nigerian naira projection for 2025.

Following this pattern, Wallet Investor projected the Nigerian naira to reach $554.41 in 2027.

NGN/EUR forecast

In the meantime, analysts at Trading Economics predicted that the EUR/NGN pair will decline to 450.14 by the conclusion of the current quarter. In a year, it was predicted that the naira will increase even more versus the euro, hitting 431.71.

It's crucial to keep in mind that predictions made by analysts and algorithms based on the Nigerian naira can be inaccurate. Before trading, always do your own research, taking a look at the most recent news, technical and fundamental analysis, and analyst commentary.

Future returns are not guaranteed by past performance. Likewise, you should never trade funds that you cannot afford to lose.