Naira’s rally in recent times hasn’t been solely due to direct interventions by the central bank. Bismarck Rewane, CEO of Financial Derivatives Company, in an interview on Arise TV Monday evening, showed new data that the naira rally is not a result of $8 billion from the Central Bank of Nigeria (CBN) as earlier reported.
According to the data shown by Rewane, the apex bank only sold $3.7 billion in the official market otherwise known as the Nigerian Autonomous Foreign Exchange Market (NAFEM), since February 2024.
That leaves the CBN’s sales accounting for only 11 percent of the total volume of $31.7 billion so far this month.
It also showed that the CBN bought $2.4 billion in the same period, eight percent of the total outflows.
Last week, Rewane mentioned on TV that the steady appreciation of the naira was as a result of about $8 billion the central bank spent to keep it up to its current levels.
“There are many things that are happening: reserves of over $40 billion are coming down. We’ve also borrowed $4 billion in bond issues. When you look at all of that, we’ve almost spent $8 billion to support the naira at the current levels,” he revealed.
However, Rewane explained today that the CBN intervening in the FX market is playing its role in maintaining external reserves to safeguard the international value of the legal tender currency.
He said that the real value of the naira using the Purchasing Power Parity (PPP) is N1,102 per dollar meaning the naira is currently undervalued by 26 percent and therefore should be intervened in.
“So if you intervene to support an undervalued currency from its misalignment to its alignment that is the right thing to do and that is what the CBN is doing,” he said.
He said that the policies of the CBN to intervene in the naira are working, “the policies are working because we can see the difference between the parallel and official rates have been bridged, market and price discovery is efficient, the balance of trade is positive ($18.6 billion), terms of trades are positive, money supply growth is reducing and are now falling slightly to $74.”
Also, half the $8 billion mentioned were bonds, however, only a total of $3.1 billion foreign bonds were issued ($ 2.2 billion Eurobond and $900 million domestic dollar bond).
Nigeria’s gross foreign currency reserves have only depleted by $ 2 billion since this year and by only $850 million this month, data from the CBN revealed.
The naira has witnessed a rally in the past months at a stable rate of N1500 to the dollar, on Friday it printed at N1,509 on the official market, and on the parallel market, the naira appreciated by N45, gaining 2.0 percent as the dollar quoted at N1,510.
A tax and finance analyst on Twitter also explained that the CBN does not necessarily need to defend the naira, currently as there’s hardly a black FX market due to the small difference between the official and black market.
“The small difference (N4 as of the last report) is just a premium for going to BDCs.
“Think of it as wholesale (EFEMs) vs retail (BDC), What am I saying? That the so-called “defense of the Naira” is only relevant if a black market exists with a wide spread, where the CBN artificially sells FX below the real market rate—essentially living in denial,” he explained.
However, if by “defense” you mean CBN selling dollars from various sources (Federation earnings, Eurobond proceeds, dollar-backed instruments, etc.), then yes. Remember, CBN sells FX and receives Naira in return, which forms part of its Naira supply — alongside banks’ CRR deposits, their capital, and unissued printed money. Also, FAAC is distributed in Naira from CBN. (BusinessDay)
