In the face of expectations that the apex bank will flood the foreign exchange market with US dollar sales, the naira saw significant daily depreciation at the Nigeria independent foreign exchange window.
FX dealers claim that there was not enough US dollar volume available in the official window to satisfy the FX demand recorded by market participants there. Numerous reports have linked the Central Bank of Nigeria’s (CBN) assistance in achieving naira stability to the swift increase in exchange rates on the foreign market.
Some experts believe that FX auctions, which have increased liquidity in both legal and informal currency markets, are to blame for Nigeria’s dwindling gross external reserves.
Nigeria FX Reserves Hit 6-Year Low
External reserves decline to $32 billion, struggling to cover six months imports bills based on latest trade report. The nation’s foreign currency reserves fell amidst low accretion from oil sales and sizeable FX obligations that are needed to be honoured.
Isaac Marshall, investor at TLG Capital said on its official LinkedIn Page that the Central Bank is defending the Naira simply by honouring the backlog of USD conversions that market participants have been hoping to complete for years.
“The result is that enormous queue of USD/NGN conversions at the Central Bank has finally ended and currency is nearly synchronized across the parallel and official markets.
“Using reserves to honour legal/proper transactions is the raison d’être of a central bank’s FX reserve. In this light, the depletion of reserves over the past month is a positive for both the currency and the Nigerian macro”, Marshall added.
Reacting, the central bank leadership has come out to deny the claim that the nation’s external balance reduction was to boost exchange rates.
“We are not defending the naira. We do not intend to defend the Naira, our policy is clear…a free market, with little or no intervention from the CBN.
“Our policy remains willing buyer, willing seller. The depletion you noticed in our foreign reserves is due to debt obligations inherited, and we just have to settle these debt obligations.
“It is part of our responsibilities. Such depletion is what you’d observe with any foreign reserves anywhere in the world. The foreign reserves will drop and it will increase as we get more inflows.
“We just received a 600 million dollar inflow. We don’t need to defend the Naira, it’s not in our intentions to”, CBN Governor Yemi Cardoso said at IMF meeting in Washington. Naira Skids as FX Turnover, External Reserve Decline
In the foreign exchange market, the Naira depreciated by 7.58% at the official market, closing at ₦1,154.08 to the US dollar. Also in the parallel market, exchange rate depreciated to ₦1,055 per US dollar as market expects Subsidised FX sales to Bureau de Change.
In the global commodity market, oil prices experienced a notable downturn, traded below $90 per barrel. Specifically, Brent crude saw a decline of 0.56%, settling at $86.80 per barrel, while WTI crude also exhibited a decrease, dipping by 0.47% to $82.30 per barrel.
