Nigeria’s Foreign Exchange Market Faces Ongoing Challenges Despite Recent Measures
Despite efforts by the Central Bank of Nigeria (CBN) to stabilize the foreign exchange (FX) market, Fitch Ratings reports that the naira remains volatile. While the International Monetary Fund (IMF) noted signs of stability attributed to interest rate hikes and the clearing of outstanding FX obligations, Fitch’s assessment emphasizes persistent challenges. The CBN is implementing initiatives such as an electronic FX matching platform, set to launch in December 2024, aimed at improving transparency and liquidity in the FX market.
Nigeria’s gross FX reserves have increased to $39 billion, bolstered by official disbursements, remittances, and a favorable trade balance. However, Fitch cautions that a significant portion of these reserves comprises FX swaps, creating uncertainty about the true net reserves position. CBN Governor Olayemi Cardoso asserts that confidence in the naira is gradually returning, driven by orthodox monetary policies and efforts to stabilize the exchange rate, which has faced fluctuations since the market was unified in June.
Despite a slight appreciation of the naira against the dollar, the high exchange rate remains a concern, significantly impacting the private sector. The latest Purchasing Managers’ Index (PMI) reflects deteriorating business conditions, with inflationary pressures driving up costs and curbing demand. As businesses struggle with increased operational expenses, the report highlights the ongoing strain on Nigeria’s economy, particularly in the non-oil sector, despite potential relief from improved crude oil production.
