Following the perennial weakening of the naira, Obinna Chima wonders if
the current exchange rate regime in Nigeria can support macroeconomic
growth and incentivise foreign investors to hold Nigerian assets
The strong gyration in the Nigerian currency market in the past few
days obviously got investors alarmed. The apparent chaos in the market,
which saw the value of the naira against the US dollar dropping to a
historic low at the interbank segment of the market has also created a
lot of anxiety in the system.
Specifically, the naira fell to around N205 to a dollar at the interbank segment of the foreign exchange market last week, despite several interventions by the central bank, as investors continued to weigh the effect of the polls’ shift on the economy.
As a result of the sustained depreciation of the naira, most financial
market analysts have been predicting the likelihood of further
devaluation of the currency by the central bank.
It was also learnt that most foreign investors have chosen to remain on
the sidelines because of election-related uncertainties.
Indeed, exchange rate management in Nigeria have undergone significant changes over the past five decades.
In Nigeria, maintaining a realistic exchange rate for the naira is very
crucial, given the structure of the economy, and the need to minimise
distortions in production and consumption, increase the inflow of
non-oil export receipts and attract foreign direct investment.
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