(Bloomberg) -- Nigeria's currency plunged to a record in the spot market on Friday, narrowing the gap with the rate that investors and exporters pay for the naira.
The currency, which is managed by the central bank, fell 2.2% to a record 424.27 versus the dollar as of 2.46 p.m. on Friday. It was the biggest drop in the official exchange rate since Feb. 23. The currency has weakened every year since 2012.
The naira has fluctuated widely this year around a largely fixed spot rate of around 415 as investors try to gauge the central bank's exchange rate direction. The Central Bank of Nigeria has been selling the greenback at between 437 to 444 naira per dollar to investors since early October.
“The spot rate has strangely been around the 411-level,” Omotola Abimbola, an analyst at Lagos-based Chapel Hill Denham said by email. But according to the central bank's real effective exchange rate, “the currency is overvalued by around 12% and that should be an indication of the adjustment we need to see.”
Read: Why Nigeria Exchange Rate Policy Is Such a Minefield: QuickTake
Africa's largest economy operates multiple exchange rates including a rate for investors and exporters, and others for government transactions, small businesses and travelers in a bid to manage demand for the greenback.
The Abuja-based central bank has devalued the currency three times since March 2020 as lower oil income put pressure on the nation's reserves, though it has resisted calls by International Monetary Fund and the World Bank has for a merger of the multiple rates.
The central bank is unlikely to allow a convergence of the exchange rates in a pre-election year, said Cheta Nwanze, a lead partner with SBM Intelligence. “That is a huge political risk,” Nwanze said.
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