Naira Continues Free-Fall At Official Markets, But CBN Gets Dollar Firepower To Defend Before It Gets Worst

Naira Continues Free-Fall At Official Markets, But CBN Gets Dollar Firepower To Defend Before It Gets Worst

  • The rise in oil price, the successful Eurobond, and also the International Monetary fund(IMF) $3.5 billion SDR credit have helped boost Nigeria's reserves
  • In fact, it is expected Nigeria reserves could hit over 40 billion in the coming months when CBN gets all the money expected
  • The rise in external reserves will come as a welcome boost for CBN in its fights to keep Naira stable amid pressure from investors and Nigerians for foreign currency

The Central Bank of Nigeria has revealed that as at Wednesday, 4th October 2021, shows Nigeria now as at Tuesday, 5th October 2021 over $37.56 billion in external reserves.

This is the biggest level Nigeria foreign reserve have been since Tuesday, 2nd, February 2020 when it stood at $36.6 billion.

In fact, Tuesday's, 5th October 2021 reserves level means in the last month Nigeria savings have increased by $2.70 billion.

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Nigeria's foreign reserves is on a record high
Growth in foreign reserves in the last month has been huge Source: screenshot from CBN
Source: Original

The rise in the country's reserves comes amid recent weeks rise in oil prices and the recent successful $4 billion Eurobond raised by the federal government at the International Capital Market (ICM).

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In fact, it is predicted that when Nigeria receives the full $3.35 billion expected from the International Monetary Fund (IMF) $650bn special drawing rights (SDRs) the reserves will further increased to over $40 billion before the end of October.

Impact

The rise in foreign reserves will come as a welcome boost for Nigerian currency which has been suffering a serious beating at both the official and black market.

Although CBN has made a strong effort to ensure the black-market rates become inconsequential, the pressure demand from companies, investors, students, parents for foreign exchange have created a window for black market traders profit to continue.

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Legit.ng quick check on the latest official exchange rate from FMDQ securities shows as at the close of Tuesday, 5, October 2021, Naira dropped in value to N414.30/$1.

When you compared Tuesday's quoted closing exchange rate to the N381/$1 as at the start of April 2021, what it means is Naira has devalued by a whopping N33.3 to the U.S dollars in 5 months.

With CBN having enough dollars to meet demands in the country, not only will black-market become more and more irrelevant but also Naira could in a way find a reasonable level at the official market to the U.S dollar

Ex-CBN Head criticises Emefiele's decision to ban BDC operators from selling forex

Meanwhile, Obadiah Mailafia, a former deputy governor of the Central Bank of Nigeria (CBN), has criticised the decision of the apex bank to stop providing foreign exchange to bureau de change operators.

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Mailafia said the decision could weaken the value of the naira against the dollar and other foreign currencies, as there might be a scarcity of forex.

With his experience of the banking system in Nigeria, Mailafia said the banks might hoard forex for themselves and sell at a high cost to buyers whenever the lenders want.

Source: Legit Nigeria

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