The Nigerian naira experienced a reversal of fortune on Tuesday, depreciating by 0.70 percent at the official Nigerian Autonomous Foreign Exchange Market (NAFEM). This marks the first decline after a streak of four consecutive trading days of gains.
The development comes as the Central Bank of Nigeria (CBN) ramps up its intervention in the foreign exchange market through retail dollar sales to commercial banks.
The local currency closed at N1,582.09 to the dollar on Tuesday, compared to N1,570.99 the previous day. However, on the parallel market, the naira appreciated slightly, closing at N1,598/$ from N1,600/$ the preceding day.
CBN Intervention and FX Market Dynamics
The CBN’s increased dollar supply, aimed at boosting liquidity in the foreign exchange market, has contributed to recent stability. However, the data shows a decline in dollar supply from $246.44 million on Monday to $201.43 million on Tuesday, indicating potential fluctuations in market dynamics.
Nigeria’s external reserves, which serve as a crucial buffer for the CBN’s intervention, dipped by 0.68 percent to $36.620 billion as of August 12, 2024. This follows a period of growth from US$34.76 billion at the end of June to US$37.88 billion as of July 15, 2024.
Central Bank Officials Weigh In
CBN Governor Olayemi Cardoso emphasized the importance of maintaining the recently achieved exchange rate stability. He cautioned that the delicate balance requires careful management to prevent jeopardizing the progress made in attracting foreign capital inflows.
Bala Moh’d Bello, a member of the Monetary Policy Committee (MPC), echoed the governor’s sentiments, highlighting the significance of exchange rate stability for price control. He attributed the recent stability to the CBN’s efforts and stressed the need for both short-term and long-term strategies to ensure a market-determined equilibrium exchange rate.
Experts Cautious on Outlook
Mustapha Akinkunmi, another MPC member, provided context to the recent exchange rate fluctuations. He noted the naira’s depreciation from N1,525.00 on June 28, 2024, to N1,605.50 on July 19, 2024. Despite the increase in external reserves to US$34.88 billion as of June 2024, he cautioned that the projected reserves of US$32.93 billion by the end of May 2024 might only cover imports for 11 months of goods and eight months of goods and services.
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Implications for Economy
The ongoing fluctuations in the foreign exchange market have significant implications for the Nigerian economy. A stable exchange rate is crucial for attracting foreign investments, controlling inflation, and reducing the cost of imports. While the CBN’s intervention has yielded positive results, sustained stability will require a comprehensive approach that addresses underlying economic challenges.
As the CBN continues to navigate the complexities of the foreign exchange market, market participants and economic analysts will closely monitor developments for clues about the naira’s future trajectory.
