Naira Weakens Despite CBN’s Intervention

Since the unification of all the official foreign exchange (FX) windows, the Naira has continued to depreciate against the US dollar, down by 39.6 per cent to N765.83/$ as of 11 October 2023 from N462.88/$ at the I&E Window.

Based on the half-year financial markets report of the Central Bank of Nigeria, it has maintained its intervention in the foreign exchange market in an attempt to alleviate demand pressures and ensure exchange rate stability.

A total of $6,439.33 million was sold at the foreign exchange market made up of spot sales of $1,557.47 million and forward sales of $4,881.86 million.

The spot sales comprised $612.41 million sold at the inter-bank Secondary Market Intervention Sales (SMIS) window, $455.31 million sold to Small and Medium Enterprises (SMEs), $441.75 million for Invisibles, and $48.00 million sold at the I&E window while the bank purchased a total of $655.53 million in the FX market.

However, the shocks of the policy have been more pronounced at the parallel market leading to a steep depreciation of the Naira to N1020/US$ on 10 October 2023.

With little control over the depreciation of the nation’s currency, the then acting governor of the Central Bank of Nigeria (CBN), Mr. Fola Shonubi, announced plans to put in place new policies that would guide the dealings of FX to boost supply in the market.

Apparently, the measures put in place have not been effective as demand for FX continues to rise amidst an acute shortage of supply.

“We have always argued that while we believe the unification of the various FX rates is a pro-market policy that will be positive for the economy in the long term, the short to medium-term impact will be hard too hard on the average consumer.

“A focus on rate convergence without structural reforms to increase the supply of FX will be a case of treating the symptoms while ignoring the underlying cause of the problem which is an acute shortage of supply amidst a growing demand for FX.

Meanwhile, while crude oil sales and Foreign Portfolio Investments (FPIs) are two major sources of FX that have declined significantly, Oil production remains depressed, reported at 1.57 mbpd in September (highest so far this year) and are yet to see any significant foreign capital inflows.

According to the Nigerian National Petroleum Company Limited (NNPCL), between September 30 and October 6, 128 crude oil theft incidents were recorded across the oil-producing areas of the Niger Delta.

In the specific timeframe mentioned, there were numerous illicit activities in the oil sector.

These included 17 cases of unauthorized connections, 27 illegal refineries, 11 infractions related to vessel tracking systems (AIS), and 49 instances of wooden boat arrests.