Nigeria’s foreign exchange (FX) reserves have grown by approximately $535 million over the past 28 days, despite the ongoing dollar scarcity in the official market.
Recent data from the Central Bank of Nigeria (CBN) indicates a steady increase in the reserves, reflecting the nation’s resilience in maintaining financial stability amid challenging economic conditions. The CBN reported that FX reserves climbed from $32.107 billion on April 19, 2024, to $32.642 billion by May 16, 2024. This boost in reserves plays a critical role in stabilizing the naira and supporting the economy.
However, the official forex market experienced a significant decline in turnover last weekend, recording a steep 69.4% drop between Thursday, May 16, and Friday, May 17, 2024. On Thursday, forex turnover was robust at $272.86 million, but it plummeted to $83.5 million on Friday, marking the lowest turnover rate since January 20, 2024. This sharp decline underscores the volatility and unpredictability characterizing the FX market.
The exchange rate between the naira and the dollar closed at N1,497/$1 on Friday, May 17, 2024, a 2.5% gain from the N1,593.9/$1 recorded the previous day. This was the weakest rate since March 20, 2024. On Thursday, the exchange rate in the official NAFEM window depreciated to N1,533.99/$1, a 4.89% drop in one day. The trading dynamics on Friday further highlighted market instability, with intra-day rates peaking at N1,555/$1 and dipping to N1,415/$1, reflecting heightened buying pressure on the naira.
The increase in FX reserves signals improved foreign investment inflows and better management of the nation’s external assets. Despite this growth, the official foreign exchange market continues to struggle with dollar shortages, putting pressure on the naira and making it difficult for importers and businesses to access foreign currency.
Although the CBN has stated it is not actively defending the naira, it has taken measures to stabilize the currency and ensure dollar availability for critical sectors. The government is also exploring strategies to boost dollar inflows, such as promoting non-oil exports and attracting foreign direct investments. Despite these efforts, the naira has recently transitioned from one of the best-performing currencies to one of the worst.
As Nigeria navigates these economic challenges, the increase in FX reserves provides a buffer to help mitigate potential shocks and support economic recovery efforts.
