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Naira Volatility: Analysts Expect Increased CBN Fx Market Interventions - NEW TELEGRAPH

MAY 21, 2024

BY Tony Chukwunyem

Citing the sharp increase in forex demand, which, according to them, was caused by portfolio investors repatriating their earnings and exiting the country, analysts at Financial Derivatives Company (FDC) Limited have said that they expect the Central Bank of Nigeria (CBN) to step up its interventions in the foreign exchange market to ensure naira stability.

The analysts, who stated this in a recent report, noted that the naira had reversed its appreciation in the first half of last month. They said: “After starting as the best-performing currency against the dollar in April, the naira reversed its 20% appreciation in the first half of April, losing 29% to trade at N1,530/$ at the parallel market on Tuesday, May 14, 2024. “This change was driven by a decline in dollar liquidity amidst rising demand pressures.

According to data from FMDQ, international investment inflows fell sharply by 69% to $476 million in April from $1.54 billion in March.” “Forex volatility and persistent inflation have increased the cost of doing business in the country, impacting corporate performance. Renewed pressures on the naira will likely keep inflation elevated in the near term, negatively impacting living standards as the new minimum wage negotiation drags on,” they added.

The FDC analysts further said: “Forex demand has increased significantly as portfolio investors repatriate their earnings and exit the country. This would require the CBN to step up its interventions in the FX market to ensure the naira’s stability. We expect pressure on the naira to remain before the next MPC meeting on May 21.”

New Telegraph reports that while responding to questions during an interactive session at the International Monetary Fund (IMF)/World Bank Spring meetings in Washington last month, CBN Governor, Mr. Olayemi Cardoso, stressed that in line with its commitment to fostering a market-driven exchange rate system, the apex bank would not intervene in the FX market, “except, in very unusual circumstances.” He said: “It is not our intention to defend the naira. And much as I have read in the recent few days, some opinions with respect to what is happening with our reserves, and the central bank defending the naira.


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