Nigeria’s FX Market Remains Unstabilised Despite CBN’s Efforts

The U.S-based capital market firm in its latest rating of Nigeria suggests a more cautious outlook as the exchange rate has yet to stem the tide of its tumultuous fall.
“The Central Bank of Nigeria is initiating several measures to address FX liquidity challenges and formalise FX activity to support the currency. These include plans to introduce an electronic FX matching platform for all FX transactions effective December 1, 2024, to provide intra-day prices in real-time and enhance transparency,” it said.
“The CBN has also raised the monetary policy rate five times by a cumulative 850bp to 27.25 per cent since February 2024. However, Fitch believes that the FX market has yet to stabilise, and the ongoing flexibility of the exchange rate remains to be tested,” Fitch stated.
Fitch further disclosed that there’s been an increase in Nigeria’s gross FX reserves, surging to $39 billion in mid-October from a low of $32.1 billion in mid-April.
It attributed this rise to official disbursements, remittances, portfolio inflows, and an improved trade balance, the latter boosted by lower imports amid higher domestic refining production and the dampening effect of currency depreciation on local demand.
However, the agency expressed caution regarding the true net reserves position, estimating that about a quarter of current gross reserves are FX swaps with local banks.
Nigeria’s CBN Governor Olayemi Cardoso has recently said the confidence in the naira is “gradually returning”, noting that the apex bank is focused on ensuring stability and cooling prices.
Speaking at the World Bank’s launch of the Nigeria Development last month, Cardoso said, “The confidence in the naira is gradually returning as a result of the policies that we are already undertaking, which goes back to the whole issue of Orthodox monetary policy, that is really what begins to encourage people to hold onto naira.”
However, despite the policy steps taken by the Cardoso-led CBN, challenges still persist in the market, with the naira trading above N1,600.
The Nigerian naira which has so far been adjudged as one of the worst performing currencies in the world appreciated against the dollar at the official and parallel markets to begin November 2024 on a positive ride.
Data from FMDQ securities showed that the naira strengthened to N1,666.72 per dollar on Friday, November 1, from N1,675.49 quoted on Thursday, October 31, indicating that the local unit gained N8.77 against the dollar to close the week.

source: businessday.ng

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