Will naira recover from new lows?

The Nigerian naira has been on a downward spiral against major global currencies, hitting new lows this month, despite recent foreign exchange (FX) reforms by the Central Bank of Nigeria. Dipo Ajayi, the Head of Fixed Income and FX at Chapel Hill Denham Securities, shared his insights on the fate of the local currency in an interview with CNBC Africa. Ajayi highlighted the challenges facing the naira, including high demand, both real and speculative, as well as a lack of confidence in the currency's value. Speculators in the market view the naira as a trading asset rather than a stable currency, leading to volatility and depreciation. The Central Bank's efforts to restore confidence in the naira have focused on providing liquidity to the market. By selling foreign exchange to banks regularly, the Central Bank aims to reduce speculative demand and stabilize the currency's value. Ajayi emphasized the importance of addressing both visible and invisible demand for foreign exchange to prevent panic buying and ensure market stability. Despite recent T-bill auctions to attract foreign investors, the supply side challenge remains a key obstacle in achieving liquidity in the FX market. Price discovery for the naira has been challenging, with rates fluctuating between the official and parallel markets. Ajayi noted that the true value of the naira is difficult to determine in the current climate of uncertainty and underpricing. He suggested that restoring liquidity could help reveal the naira's actual value and stabilize its trading levels. Overall, restoring confidence in the naira and addressing supply-side challenges are crucial steps in navigating the currency's depreciation and ensuring market stability.