Naira Lost 7.6% after CBN Gives Notice on FX Inflows
The naira recorded large daily depreciation at the Nigeria autonomous foreign exchange window amidst expectation that the apex bank would saturate FX market with US dollar sales.
According to FX traders, the volume of US dollar available at the official window became insufficient to meet FX demand logged by market participants at the official window.
Various reports had attributed rapid exchange rate uptrend in the forex market to the Central Bank of Nigeria (CBN) support to achieve naira stability.
Some analysts are of the view that Nigeria’s declining gross external reserves was as a result of FX auctions that have lifted liquidity levels across formal and informal currency markets.
Nigeria FX Reserves Hit 6-Year Lower
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.
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.
