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The value of the Nigerian Naira has experienced a decline, with the currency selling at N1,050 to the dollar at the parallel market. This comes as the country’s external reserves have reached their lowest level in nearly seven years.
According to the Central Bank of Nigeria (CBN), the 30-day moving average of the external reserves currently stands at $32.612 billion, the lowest level since September 2017. The depreciation of the Naira can be attributed to the depletion of the foreign reserves.
Economic analysts believe that using the reserves to defend the currency is not a sustainable long-term solution. The CBN has been intervening in the foreign exchange market to stabilize the Naira, but this approach may not be viable in the medium to long term.
The external reserves have depleted by $1.837 billion, or 5.3%, between March 18, 2024, and April 12, 2024. The CBN’s strategy includes discounted sales to bureau de change operators to enhance market liquidity and intervention in the official exchange market.
Despite these efforts, the reserves have continued to deplete. However, there is hope for a recovery in the reserves in the coming weeks. With the anticipated Afreximbank loan, increased interest from foreign portfolio investors, and the surge in crude oil prices, it is expected that the reserves will see an uptick.
While some experts argue that using the reserves to support the Naira is necessary for stability, others believe it is not a sustainable solution. The use of reserves to defend the currency artificially may create problems in the long run.
The prevailing exchange rate has not resulted in a decrease in the prices of goods, leading to concerns about inflation and the effectiveness of the current approach.
This article was updated 1 month ago
