In an attempt to contain exchange rate volatility, the Central Bank of Nigeria (CBN) launched a daring foreign exchange (FX) intervention, injecting more than $471 million into authorized dealer banks over a period of three days.
The daring intervention aimed at providing stability in the official Nigerian Foreign Exchange Market (NFEM) window, where the naira fell by 1.78% to N1,629 against the U.S. currency.
The CBN’s latest injection was $149.4 million offered at rates between N1,603.11 and N1,620.00 per dollar, alongside $321.71 million injected into the market on Friday and Monday.
With Nigeria’s net FX reserves in sight, analysts predict the CBN can still finance its monthly FX sales valued at $714.65 million, for about 32 months, buffering increasing economic stresses.
Offshore Investors Fuel Demand Rally
The CBN intervention is coming at a time of heightened demand by foreign portfolio investors (FPIs), who are increasingly dumping investment securities in a quest for safe havens. The action reflects a general global sentiment downturn, led by uncertainty in the international markets, due to Trump’s tariffs.
African Eurobonds, including Nigeria’s, are bearing the brunt of a U.S.-initiated trade war, which has the potential to stoke global inflation and drag economic growth. With offshore investors offloading riskier portfolios, pressure mounts on the Nigerian forex market, and it becomes difficult for the CBN to uphold naira stability in the face of diverging spot exchange rates.
Parallel Market Falls as Crude Oil Prices Stutter
At the parallel market, the naira weakened further, losing 4.32% to N1,638.40 to the United States dollar as demand pressured to erase previous gains. At the FMDQ FX window, the naira appreciated slightly by 0.93% to N1,616.88 per dollar after the CBN injected supply.
Yet, Nigeria’s external revenue projection remains under jeopardy as international commodity markets grapple with a historic decline in crude oil prices. The decline is caused by U.S. tariffs alongside OPEC+’s decision to raise production by 411,000 bpd against expectations, affecting Nigeria’s 2025 budget crude oil benchmarks. The events have raised fiscal risks for the government, worsening the naira’s plight.
Economic Implications and Market Outlook
Nigeria’s economy stands at a crossroads with heightened global trade tensions and commodity market dynamics laying bare weaknesses in its forex reserve and revenues.
The CBN’s $471 million intervention is in addition to its resolve to close out further naira declines, but skeptics doubt its long-term sustainability amidst the relentless offshore pressure and softening oil market. With spot FX rates depreciating, investors and businesses are plagued by increased uncertainty.
