The naira on Tuesday recovered from the previous day’s loss, gaining N28.15 (2.02%) against the US dollar at the official market.
The local currency has consistently depreciated against the dollar across official and unofficial foreign exchange (FX) markets since the last two week, following speculative activities and low liquidity.
After trading on Tuesday, the naira appreciated as the dollar was quoted at N1,390.96, stronger than N1,419.11 quoted on Monday at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
This comes as the external reserves, which gives the Central Bank of Nigeria (CBN) the firepower to defend the naira declined in April following the country’s debt payment obligations and other interventions by the CBN.
Data from the CBN showed that Nigeria’s external reserves declined to $32.232 billion in April 29,2024 from $33.570 recorded at the beginning of the month.
Olayemi Cardoso, governor of the CBN, on April 17, 2024 in Washington D.C. explained position on naira defence, saying, “It is not in our intention to defend the naira, and much as I have read in the recent few days, some opinions concerning what is happening with our reserves and the CBN defending the naira.
“If you think back to what our overall policy and philosophy has been here, you can see it’s counterintuitive. The shift in our reserves has really little or nothing to do with defending naira and that is certainly not our objective,” he said.
On the parallel market, popularly called black market, the naira, on Tuesday steadied at 1,350 per US dollar. During the recent Monetary Policy Committee (MPC) meeting, Olayemi Cardoso, Governor of the Central Bank of Nigeria (CBN), emphasized the critical need to attract inflows to maintain liquidity in the foreign exchange market and stabilize the exchange rate.
In his statement, Governor Cardoso highlighted the importance of addressing inflationary pressures through exchange rate management to safeguard both price stability and long-term economic growth.
“Failure to tame inflationary pressure using the exchange rate channel may jeopardize not only price stability but also long-term growth,” stated Governor Cardoso.
Addressing concerns raised at the March 2024 MPC meeting, Governor Cardoso emphasized the need to reduce negative real interest rates to attract capital flows and enhance liquidity in the FX market. He stressed the significance of attracting capital flows through foreign portfolio investments and moderating exchange rate pressures to mitigate the impact of exchange rate pass-through on inflation, particularly in Nigeria’s import-dependent economy.
Commenting on the monetary situation, Mustapha Akinkunmi highlighted a decline in Nigeria’s reserve money by 24.91 percent to approximately N22.2 trillion by the end of February 2024. Despite this, broad money (M3) supply increased to N93.7 trillion, contributing to inflationary pressures. Nigeria’s external reserves also decreased to US$32.87 billion as of March 19, 2024, from US$33.68 billion in February 2024.
Although current reserves cover imports for 5.7 months of goods only and 4.5 months of goods and services, the country’s ability to repay short-term debts using reserves exceeded the threshold at 104.0 percent, he said.
According to him, the reserves-to-broad money ratio of 33.1 percent surpassed the 20.0 percent threshold, indicating Nigeria’s capacity to manage capital flows effectively.
Governor Cardoso’s emphasis on attracting inflows and managing exchange rate pressures underscores the CBN’s commitment to maintaining stability in the FX market and combating inflationary challenges in Nigeria’s economy.
Bamidele Agoo, member of the MPC, said the foreign exchange market was positively impacted by the last hike in Monetary Policy Rate (MPR) and other rates, adding that further hike in MPR will still help to create the right environment to moderate the volatility levels of naira exchange rate.
He said the exchange rate fluctuations in the recent past caused lots of instability in production sectors and adversely affected people’s welfare in every sector of the Nigerian economy. These accentuate high unemployment, prevalent poverty, and high social insecurity. Consequently, it presents a serious policy dilemma for the MPC given the imperative to sustain the growth trajectory with limited tools at its disposal, low productive capacity, high import dependence as well as the constricted fiscal environment.
For Emem Usoro, member of the MPC, the exchange rate depreciation in February was occasioned by speculative activities, and insufficient liquidity in the foreign exchange market despite substantial inflows at the NAFEM from US$2.39 billion recorded in the preceding period of January 2024, to US$5.35 billion in February 2024.
