CBN Spends $383m to Defend Naira, 30% Below Sept. FX Sales
CBN ACTION: The amount of US dollar sold to authorised dealer banks via foreign exchange market auctions fell by about 30% month on month in October 2024 as the Central Bank of Nigeria (CBN) slowed down support for the naira.
The naira has lost significant value; falling rapidly than anticipated in the forex market due to US dollar shortage versus demand level registered by eligible FX users in the official window.
In October, the CBN spent $383 million to buy the naira from local banks as part of its efforts to boost FX liquidity in the official window. This translates to 29.53% decline in FX sales to authorised dealer banks, compared with $543.5 billion to reduce naira’s volatility in the official window in Sept.
Analysts are of the view that the CBN body language shows preference for its willing buyers, willing sellers exchange rate model, noting that weak macroeconomic condition appears to be standing against the full implementation.
In October, the Nigerian Autonomous Foreign Exchange Market (NAFEM) saw improved dollar liquidity, with the naira trading between ₦1,540 and ₦1,697 per US dollar, AIICO Capital Limited said in a note.
According to the investment firm, the Central Bank intervened with an estimated $383 million to stabilize rates, though the naira depreciated overall, closing at ₦1,675.49 in Oct.
This translates to monthly drop of 8.66% in the value of the local currency amidst surging misery index after devaluation and subsidy remove in the second half of 2023.
Though FX intervention sales slowed, and naira falling, accretion into external reserves maintained uptrend last month. Gross balance in the nation’s external reserves grew by $1.43 billion, ending October at $39.79 billion.
The increased was supported by reduced CBN interventions in alignment with market-driven policies, AIICO Capital Limited told investors in a report.
The external reserve has been strengthen further following successive inflows from various sources ahead of upcoming Electronic Foreign Exchange Matching System (EFEMS), set for December 2024, aims to improve FX market transparency.
Analysts noted that accretion has been relatively on the rise as government reforms, including subsidy removal and production incentives, boosted investor confidence, with capital importation reaching $6.9 billion by August.
With the aim to see $1 billion inflows on monthly basis, Finance Minister Wale Edun reaffirmed the commitment to transparency, enhancing foreign investment and economic stability.
The naira was down by N50 month on month in the parallel market, reaching ₦1,750 per US dollar at the end of October trading session, analysts said in the report. #CBN Spends $383m to Defend Naira, 30% Below Sept. FX Sales FX Stability: CBN Sells 122.671m Dollars to 46 Authorised Dealers
