Nigeria’s external reserves have surged to $38.67 billion year-to-date, marking a 17.11% increase since January 2024.
However, the naira has depreciated by 39.8% in the official foreign exchange market during the same period, data from the Central Bank of Nigeria (CBN) shows.
The reserves have risen by $5.65 billion, from $33.02 billion at the start of the year to $38.67 billion as of October 10, 2024.
Despite this, the naira has suffered steep losses, with the dollar trading at N1,641.27 on Friday, compared to N988.46 in January 2024, representing a decline of N652.81 in the Nigerian Autonomous Foreign Exchange Market (NAFEM).
In the parallel market, the naira traded at N1,700 on Friday, down 12.35% from N1,490 in late January. Despite the reserve growth, the CBN has been unable to stabilize the currency, focusing instead on building reserves to possibly tackle upcoming forex obligations or future interventions.
The head of macro-strategy at FIM Partners, Charlie Robertson suggested that the CBN may be prioritizing reserve accumulation over currency stability.
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“The CBN is likely building a war chest for future interventions or to prepare for forex payments,” Robertson said.
The head of financial institution ratings at Agusto Consulting, Ayokunle Olubunmi noted that the CBN is cautious about depleting reserves by defending the naira.
Meanwhile, Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, highlighted structural issues in the forex market, pointing out fiscal inefficiencies that exacerbate exchange rate volatility.
In its September meeting, the Monetary Policy Committee (MPC) expressed concerns over excess liquidity and its impact on forex demand, emphasizing the need for tighter fiscal discipline.
The CBN governor, Olayemi Cardoso, previously cited speculative activities and capital outflows as key factors driving the naira’s decline.
As Nigeria seeks to stabilize its currency, analysts caution that achieving sustainable exchange rate stability remains a challenge, despite recent efforts to boost reserves and address underlying economic issues.
(Edited by Oludare Mayowa; omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)
