Nigerian naira crisis: CBN works to save the plunging currency

The Nigerian naira weakness continued this week after another set of weak data by the country’s central bank. The official USD/NGN exchange rate stands at ~766 while the black market rate rate has jumped to 932. 

Nigeria dollar reserves are falling.

Data published by the Central Bank of Nigeria (CBN) showed that there was an undisclosed $7.5 billion transaction with JP Morgan and Goldman Sachs. The bank also revealed another forward contract of about $7 billion. As a result, it has a net reserve of about $17 billion, lower than previously expected.

In a statement on Tuesday, the acting central bank governor, Folashodun Shonubi announced new measures to stem the naira rout. As part of the strategy, the governor said that the bank was introducing a crackdown on currency speculators. The bank believes that naira’s collapse is mostly because of these speculators. The statement said:

“Some of the plans and strategies, which I’m not at liberty to share with you, means sooner rather than later, the speculators should be careful because we believe the things we’re doing, when they come to fruition, may result in significant losses to them.”

Central Bank of Nigeria is working to save the naira

The bank did not disclose some of these measures. However, a circular published by The Punch warned that the bank would consider limits on money transfer companies, which are fueling the black market rate.

Nigeria is facing significant challenges as I wrote here. One of these challenges is the elevated inflation, which has been exacerbated by the removal of oil subsidies. Companies, on the other hand, have reported over $300 million in currency losses following the crash if the naira. 

Nigeria is also not benefiting from the rising oil prices. The recent data shows that Nigeria has made no money from crude oil sales. The last time it made money was in August last year.

Now, the falling foreign reserves could put more pressure on the naira. In a nite, an analyst at BanTrust said:

“The local currency will remain under pressure in the coming months unless the central bank increases its intervention in the market and/or incentivises foreign portfolio inflows.”

At the same time, the decision to liberate the forex market has not achieved the desired goals. Inflows from foreigners have not moved as fast as expected while the spread between the official and black market rate has widened further.

Therefore, the Nigerian naira crisis will likely continue in the coming months since the economy will likely continue deteriorating. For example, the falling naira is already affecting companies that use imports.

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