Foreign exchange pressure in Nigeria has intensified as some dealers have quoted a bid price of N900 per dollar. The Economist Intelligence Unit (EIU) has issued a prediction that the naira will reach an exchange rate of 1,000/$ by 2027.

The EIU's latest report forecasts the average rate at N815 to $1 in 2024, sliding to N1,018 to $1 by the end of 2027. The report also indicates a spread of 10-15 percent against the black-market rate over the same period.

In a recent development, the naira had already crossed 800/$ at the Investors' and Exporters' (I&E) forex window, which is Nigeria's official foreign exchange market. On the parallel market, commonly referred to as the black market, the dollar traded around N870 as of Monday.

During the FX auction on Friday, buyers and sellers maintained bids as high as N799.50/$, showing a stronger rate than N869/$ on Thursday and N845/$1 bid on Wednesday. The auction also saw lower bids of N465/$, stronger than the N730/$ bid maintained on Thursday and Wednesday at the I&E window.

One customer of a tier one bank with a strong regional presence bid at N800/$ on July 25 but faced rejection on July 27. Subsequently, the bank advised the customer to bid at N900/$.

Yemi Kale, partner and chief economist at KPMG Nigeria, highlighted that stabilizing the exchange rate would be challenging until there is sufficient supply to meet foreign exchange demand. He pointed out that demand is not only driven by legitimate users but also by speculators who anticipate difficulties in maintaining stable rates.

Kale emphasized that supply needs to come from various sources, including oil sales, foreign portfolio investments, foreign direct investments, home remittances, and export-oriented enterprises. However, he noted that confidence in the Nigerian economy is currently low, leading foreign and domestic investors to prefer holding dollar-denominated assets as a hedge against inflation and asset depreciation.

Data from the Central Bank of Nigeria (CBN) compiled by FBN Quest revealed that FX inflow into the Nigerian economy declined by 3 percent quarter-on-quarter (q/q) and 7 percent year-on-year in the first quarter of 2023, amounting to $17.2 billion. The figure comprised autonomous FX inflow of $10.0 billion (down 12 percent q/q) and FX inflow through the CBN of $7.2 billion (up by 15 percent q/q).

This downward trend in FX inflow since Q1 2020 is attributed to structural issues, including limited accretion to gross official reserves from crude oil sales and restrictive FX policies by the monetary authorities that hindered the free flow of FX out of the country and discouraged foreign portfolio investors from bringing more capital into Nigeria.

Analysts at FBN Quest concluded that addressing these structural challenges and restoring confidence in the economy will be crucial to stabilizing the foreign exchange rate and boosting FX inflow in the future.