EIU Predicts Reversal Of FX Unification Policy

The Economist Intelligence Unit (EIU), an arm of The Economist of London, has predicted that the Nigerian government will go back to a system where they have more control over the exchange rate.

According to Business Day, EIU made the prediction in its latest report about the Nigerian currency, the naira.

Last month, the Central Bank of Nigeria (CBN), complying with the federal government’s directive, announced the unification of all segments of the foreign exchange (FX) market, signalling the end of its control of the foreign exchange market.

The UK-based platform, in the report, said the move would be taken to try and stop the naira from losing its value much further.

The EIU said the CBN, which manages the country’s money, doesn’t have much experience handling a flexible exchange rate system.

“The CBN lacks experience in conducting monetary policy under a float, and the need to control rapidly increasing inflation will become more acute over time,” EIU said.

“Our forecast is finely balanced, but we expect a return to heavier exchange-rate management from the second half of 2023 as the naira slides beyond N800:US$1 from N770:US$1 in early July.”

The research firm said that there is currently a shortage of foreign currency in the country, especially when it comes to fulfilling demands for foreign exchange through Form A and M.

This scarcity, the firm said, combined with speculators taking advantage of the situation, might push the CBN to step in more and “intervene” in the market, especially since about 98 percent of their foreign reserves are in cash.