CBN Sells $250mn to Defend Naira as FX Pressures Increase
The Central Bank of Nigeria (CBN) sells $250 million in multiple transactions to authorised dealers and banks as part of an effort to strengthen the local currency, the naira, at the official foreign exchange market.
The naira has been facing strong selloffs in the recent past week, and the local currency lost N14 in one week despite significant FX intervention by the Apex Bank.
The CBN injected $250 million to authorised dealer banks, withdrawing the equivalent naira volume as demand for greenbacks outpaced naira requests.
In its market update, Cordros Capital Limited attributed naira depreciation to strong demand from corporates seeking to leverage available liquidity to secure imports ahead of the festive season.
The investment firm stated that the FX demand outweighed the CBN’s USD250.00 million intervention to banks in the week. Naira which had strengthened below $1430 with minimal intervention is now struggling to keep pace in the forex market.
Despite the exchange rate volatility, Nigeria’s external buffers improved modestly. Foreign reserves rose by 1.10% week-on-week, climbing to $44.12 billion from $43.64 billion.
The accretion was supported by stable oil receipts, stronger non-oil inflows, and a sustained trade surplus — all of which reinforced the Central Bank’s ongoing efforts to maintain a firmer macro-liquidity backdrop and support overall market stability, Cowry Asset said in a commentary note.
Looking ahead, the FX market is likely to maintain a cautious but steady posture, moving in line with the strength and consistency of inflows rather than speculative behaviour, analysts at Cowry Asset Limited said in a commentary note.
Current market conditions suggest that pricing is being shaped by lighter supply rather than any fundamental shift in sentiment, meaning the naira may continue to face bouts of pressure unless inflows improve meaningfully.
However, the gradual build up in external reserves and sustained CBN interventions should provide a measure of stability, helping to temper volatility even as structural demand-supply gaps persist.
“We expect the healthy FX reserves, favourable current account position, and firmer global monetary easing to reinforce foreign investor sentiment and stimulate FX market inflows,” Cordros Capital maintains.
Oil prices eased about 1% on Friday to settle at one-month lows as the U.S. pushed for a Russia-Ukraine peace deal that could boost global oil supplies, while uncertainty over U.S. interest rates curbed investors’ risk appetite.
Coupled with the week earlier losses, crude oil prices dipped w/w as Brent crude shed by $1.83 (-2.84%) to $62.56 per barrel, while U.S. WTI lost $1.89 (-3.15%) to close at $58.06.
Similarly, gold prices held steady on Friday, after falling over 1% earlier in the session, as traders boosted bets on a December U.S. interest rate cut following dovish U.S. Federal Reserve comments.
As such, spot gold fell 0.34% week on week to $4,065.90/oz, while U.S. gold futures decreased 1.79% w/w to settle at $4,009.80. Commodities prices are expected to see mixed to positive performance next week, amidst investors betting on a December rate cut and a boost in global oil supplies. #GTCO Slides Amidst Multiple Block Transactions
