The naira-dollar exchange rate outlook remains relatively stable in the medium term as the Central Bank of Nigeria (CBN) continues to rely on stronger external reserves, foreign exchange liquidity and monetary policy measures to support the local currency.
According to a report by Nairametrics, the official interbank/NAFEM exchange rate has remained within a narrow range of N1,327 to N1,330 per dollar despite the CBN’s recent 350-basis-point reduction in the Monetary Policy Rate (MPR) from 26.5% to 23%.
The rate cut, announced by the Monetary Policy Committee (MPC), came as inflation declined to 15.39% in August.
In the parallel market, the naira opened at about N1,385 per dollar on Monday, keeping the gap between the official and parallel markets relatively narrow compared with previous years.
Nairametrics reported that stronger external buffers, supported by increased capital flows and sustained receipts from the oil and gas sector, have helped the CBN maintain foreign exchange liquidity and limit speculative pressure on the naira.
The CBN has also continued to use monetary policy measures, Open Market Operation (OMO) bills and other interventions to support FX liquidity and keep the currency around the N1,300/$ level.
However, the naira remains vulnerable to periods of weaker interbank FX turnover and increased corporate dollar demand. Reduced market turnover means that large corporate FX requests can trigger intraday pressure on the currency when liquidity is tight.
Meanwhile, foreign portfolio investors have continued to show interest in short-term naira-denominated instruments, including Treasury Bills and OMO bills, attracted by relatively high domestic yields.
However, yields on these instruments have started to decline following the reduction in the MPR to 23%.
Nairametrics noted that strong demand for Treasury Bills and the oversubscription recorded in recent OMO auctions indicate that domestic liquidity remains high and demand for naira-backed assets is still strong.
$55.25bn Reserve Buffer
Nigeria’s gross external reserves have risen above $55 billion, reaching a reported $55.25 billion, supported by diaspora remittances, trade balances and crude oil inflows.
The higher reserve position gives the CBN additional capacity to meet legitimate commercial and invisible FX demand while providing a buffer against speculative pressure on the naira.
However, the report identified lower interest rates as a potential risk to the currency. A decline in domestic yields could reduce the attractiveness of Nigerian fixed-income assets to foreign portfolio investors, potentially slowing foreign currency inflows.
Continued domestic demand for dollars to finance energy requirements and raw material imports also remains a source of pressure on the FX market.
According to the report, maintaining crude oil production at or above 2 million barrels per day will be important to sustaining FX inflows and supporting naira stability.
