CBN spent $8bn on Naira defence against dollar at FX market – Rewane

 

The Central Bank of Nigeria (CBN) has reportedly expended a staggering $8 billion in its efforts to defend the naira against the US dollar in the foreign exchange (FX) market. This revelation was made by renowned economist and financial analyst, Bismarck Rewane, who shed light on the ongoing struggles faced by the Nigerian currency amid persistent economic challenges. 

According to Rewane, the massive intervention by the CBN highlights the depth of Nigeria's foreign exchange crisis, as the central bank continues to inject large sums of foreign reserves into the market in an attempt to stabilize the naira. Despite these interventions, the local currency has continued to experience significant volatility, with fluctuations in the exchange rate reflecting the deep-rooted structural issues within the Nigerian economy. 

The pressure on the naira has been exacerbated by several factors, including dwindling foreign reserves, reduced foreign direct investment, and declining export revenues. Nigeria's heavy reliance on oil exports for foreign exchange earnings has left the country vulnerable to global oil price fluctuations. With crude oil prices experiencing periodic declines and production levels often hindered by operational inefficiencies and security concerns in the Niger Delta, the country's forex inflows have been insufficient to meet the high demand for dollars. 

The CBN's aggressive intervention in the FX market, which involved selling off significant portions of its dollar reserves to prop up the naira, has sparked concerns about the long-term sustainability of such measures. Rewane emphasized that while defending the currency through direct interventions may provide temporary relief, it is not a viable long-term solution. The depletion of foreign reserves without corresponding inflows could leave the country even more vulnerable to future currency shocks, further exacerbating inflationary pressures and economic instability. 

Market analysts have noted that the CBN's interventions have not effectively stemmed the tide of naira depreciation, as the currency continues to weaken despite the injection of billions of dollars into the FX market. The naira's struggles have had significant implications for businesses, importers, and the general cost of living, with inflation soaring and the prices of essential goods and services rising steadily. The cost of doing business in Nigeria has also escalated, with manufacturers and other import-dependent industries struggling to cope with the impact of foreign exchange shortages. 

The persistent demand for the US dollar, driven by importation needs, capital flight, and speculative trading, has further strained the naira. The disparity between the official exchange rate and the parallel market rate has widened, reflecting the continued supply-demand imbalance in the forex market. With limited dollar inflows, businesses and individuals seeking forex often turn to the black market, where rates are significantly higher than the official rate set by the CBN. 

Rewane's comments underscore the urgent need for comprehensive economic reforms to address Nigeria's foreign exchange challenges. Experts have consistently called for policies that encourage export diversification, boost foreign direct investment, and enhance local production to reduce the country's dependence on imports. Without these structural adjustments, the cycle of naira depreciation and costly interventions in the FX market is likely to persist. 

The government's economic team has been under immense pressure to find lasting solutions to the currency crisis, with calls for increased transparency in forex allocation and a more market-driven exchange rate system. While the CBN's interventions are intended to maintain exchange rate stability and curb excessive volatility, their effectiveness remains in question given the ongoing depreciation of the naira. 

As Nigeria navigates these economic challenges, the focus will be on the government's ability to implement policies that promote sustainable growth and financial stability. Observers will be watching closely to see if the CBN continues its interventions at the current scale or if it will shift towards alternative strategies to address the root causes of Nigeria's forex crisis.

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