The Central Bank of Nigeria (CBN) spent over $580 million in May to bolster the Naira to achieve a 66 basis point appreciation to N1,586.15/USD.
However, this aggressive intervention impacted Nigeria’s external reserves, crashing it to $38.045 billion.
Last month, the naira faced significant pressure, reaching intra-Day highs of N1,614/USD due to sustained corporate demand and earlier weakness in global oil prices. The CBN’s strategic dollar sales helped stabilise the currency and narrow the spread between official and parallel market rates, but concerns are mounting about the sustainability of this approach. A portion of Nigeria’s reserves is tied up in swap agreements and forward contracts, limiting the liquid reserves available for such interventions.
Amid the challenges, May brought some positive signals following inflows from exporters and the increased interest from foreign investors, aided by Moody’s recent credit rating upgrade.
Additionally, remittance inflows soared by 44.5 per cent year-on-year to $4.76 billion in 2024, offering a vital boost to FX liquidity.
Yet, heavy reliance on CBN interventions risks distorting the market, potentially deterring exporters and investors from supplying dollars at current rates. Analysts call for a shift toward structural reforms to ensure long-term stability.
To ease pressure on reserves, experts advocate for clearer FX policy communication, increased non-oil export earnings, and greater transparency in reserve management. Formalising remittance channels could further enhance FX supply.
“The CBN’s interventions are a short-term fix,” said Ibrahim Musa, a currency trader. “Nigeria must prioritise reforms to attract organic FX inflows and allow more exchange rate flexibility to safeguard its reserves.”
As the CBN grapples with these dynamics, the focus is on building a resilient FX market to protect Nigeria’s economic stability without further depleting its reserves.
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