Nigerian Naira Appreciates Against US Dollar as Central Bank Implements Stability Policies

The Nigerian naira has been appreciating against the US dollar, driven by the Central Bank's policies to boost currency stability and dollar liquidity. This has significant implications for the country's economy, though challenges remain in fully benefiting the population.

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Nigerian Naira Appreciates Against US Dollar as Central Bank Implements Stability Policies

Nigerian Naira Appreciates Against US Dollar as Central Bank Implements Stability Policies

The Nigerian naira has been appreciating against the US dollar in recent weeks, with the Central Bank of Nigeria (CBN) implementing various policies to sustain currency stability. The naira reached a four-month high of ₦1,120 per dollar on the black market, driven by a series of foreign exchange reforms that have unlocked dollar liquidity.

The turning point for the naira came when the CBN cleared the foreign exchange backlog of requests estimated to be worth $7 billion. This move, along with other measures such as forbidding the use of dollar collateral for naira loans and offering to sell dollars to Bureaux de Change at more market-reflective rates, has helped boost confidence in the currency.

On Tuesday, the CBN approved the sale of $10,000 at the rate of ₦1,021 per dollar to eligible Bureau de Change operators, narrowing the margin between the parallel market and the Nigerian Foreign Exchange Market rates. The official exchange rate has remained relatively stable, with the CBN selling dollars at ₦1,252 as of April 25, 2024.

Why this matters: The stability of the Nigerian naira has significant implications for the country's economy, as it affects trade, inflation, and foreign investment. The CBN's efforts to manage the currency and provide dollar liquidity are critical for maintaining economic stability and growth in Africa's largest economy.

Despite the recent appreciation, the benefits have not yet fully trickled down to the general population, as prices of goods and services remain high. Experts emphasize the need for the government to address various challenges, such as improving security, investing in infrastructure, and efficiently managing the oil and gas sector, which is critical for the country's foreign exchange earnings.

CBN Governor Olayemi Cardoso clarified that the bank is not defending the naira by depleting foreign reserves, stating, "The depletion in foreign reserves is due to the settlement of inherited debt obligations, not to defend the naira." The CBN remains committed to building confidence in the Nigerian currency through its policies and actions in the foreign exchange market.

Key Takeaways

  • Naira appreciates against USD, reaching 4-month high of ₦1,120 per dollar.
  • CBN cleared $7B forex backlog, boosting confidence in the currency.
  • CBN sells $10,000 to BDCs at ₦1,021/$ to narrow parallel market gap.
  • Naira stability impacts trade, inflation, and foreign investment in Nigeria.
  • CBN denies depleting reserves to defend naira, citing debt obligations.