CBN steps in to stabilise naira
The naira may be converging to the NGN130/$1 level, after the CBNsold$900millionlatelast week at this cut-off rate. Due to public holidays in Nigeria Monday and Tuesday, it will become clearer today whether the interbank FX market stabilises, having been effectively closed since last Wednesday. Although naira devaluation has become a reality, a10 per cent depreciation is not cataclysmic from a macroeconomic standpoint, notably in a global environment characterised by more significant exchange rate fluctuations in some emerging and developing economies. Maintaining appropriate exchange rate stability will be critical in the coming weeks if the CBN wants to prevent a self-fulfilling depreciation of the currency. Without CBN intervention and FX liquidity, we believe the naira could test NGN135/$1, but with foreign reserves of $57.2 billion the CBN has the capacity to support the exchange rate at its current level and provide market liquidity. A caveat to this is that oil prices could continue to weaken further and test the CBN’s resolve.

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