Key highlights of the article
- Nigeria’s exchange rate at the official and black markets ended 2022 at N461.5/$1 and N735/$1 respectively.
- This represents a 5.7% and 23.1% depreciation year to date in 2022.
- The reason for the depreciation was due to CBN policies, a rise in interest rates, surging demand, etc.
- The external reserves also fell by about $3 billion during the year.
Nigeria’s exchange rate closed the year 2022 at an official rate of N461.5/$1 on the official Investor and Exporter window. This represents a 5.7% depreciation in one year.
The exchange rate between the naira and the US dollar at the official Investors and Exporters (I&E) window closed at N422.67/$1 on the first working day of 2022 after closing 2021 at N435/$1.
However, on the black market where the rates are determined by disparate market forces, the exchange rate closed between N730-N735 to the dollar on peer-to-peer markets as well as on cash trades. Inflows which represent dollars sold as transfers from overseas proceeds go for an average of N740/$1.
- This represents a depreciation of 23.1% on the black market for the year ending December 31st, 2022. The black marker opened in 2022 at an exchange rate of N565/$1.
The exchange rate disparity between the official and black market rates is an estimated N274.5/$1. It was N130/$1 at the start of the year.
Whirlwind 2022 for Exchange rate
The naira suffered a tumultuous 2022 as several policy decisions by the central bank triggered massive depreciation of the exchange rate in the second half of 2022.
- For example in February 2022, the central launched the RT 200 scheme targeted at driving export proceeds into the official channels. However, this failed to merge the official and black market rates.
- The central bank also maintained multiple exchange rate windows despite adamantly yielding to World Bank’s demand for a single exchange rate window.
- The CBN however, settled for the NAFEX as the official benchmark for determining the exchange rate.
- CBN’s introduction of new naira notes was perhaps the biggest trigger for currency devaluation, sending the exchange rate on a tailspin against the US dollar.
Apart from the CBN policy actions, other factors that have affected the depreciation of the naira include higher interest rates globally and a drastic reduction in foreign investors’ portfolio inflows into Nigeria.
Others include a drop in Nigeria’s crude oil production for the better part of 2022 and a surge in demand for forex by companies looking to repatriate funds that had been trapped in the country since the Covid-19 lockdown.
The dollar also gained against several global currencies as a hike in interest rates by the global central bank triggered a flight to safety to the dollar.
How the exchange rate performed throughout the year
First Quater: Global headwinds emanating from the Russia-Ukraine crisis saw the exchange rate depreciate to as low as N587/$1 by the end of March 2022.
- Meanwhile, on the official NAFEX market, the exchange rate was trading for N416.17/$1
- While most expected the central bank to cave in under pressure to devalue the currency it set up in RT 200 policy in February.
Second Quarter: According to our records the exchange rate breached the N600/$1 price range on May 19 2022 closing at N603/$1.
- it will go on to close the first half of the year at N615/$1. Traders who spoke to Nairametrics at the time alluded to this due to surging demand for forex amidst scarcity.
- The official rate was N429/$1.
Third quarter: Things got worse in the third quarter of the year as the exchange rate fell further breaching the N700/$1 price in about 60 days.
- By the last day of August, the exchange rate was already trading at N700/$1 in most markets and even higher for inflows.
- By September 2022, the exchange rate was trading at N735/$1.
- Meanwhile, the official exchange rate traded at N437.05 depreciating past the price it opened the year.
Fourth Quarter: The exchange rate started the quarter with a massive slide triggered by central bank decisions to introduce new naira notes.
- The exchange rate fell to as high as N875/$1 in early November as traders scrambled for price discovery. Inflow prices for some traders sold for over N900/$1.
- While this was raging the exchange rate at the official marker fell slightly to about N446/$1.
- As speculations for the forex wanned, the exchange rate at the black market strengthened closing the quarter where it ended at about N735/$1.
The external reserve which opened the year at $40.5 billion closed 2022 at about $37 billion. This represents a sharp fall of about $3 billion in net sales.