Cbn intervention forex market will protect naira financial expert

A very timely and relevant topic!

The Central Bank of Nigeria (CBN) has indeed taken several measures to intervene in the foreign exchange (forex) market to protect the value of the naira. Here are some of the key interventions:

  1. Forward Market Intervention: The CBN has been actively intervening in the forward market to stabilize the naira. This involves buying and selling foreign currencies at predetermined rates to manage the exchange rate.
  2. Spot Market Intervention: The CBN also intervenes in the spot market by buying and selling foreign currencies to absorb excess supply and demand, thereby maintaining a stable exchange rate.
  3. Foreign Exchange Auction: The CBN conducts foreign exchange auctions to allocate foreign currencies to authorized dealers, such as banks and bureaux de change. This helps to manage the supply of foreign currencies and maintain a stable exchange rate.
  4. Restrictions on Forex Transactions: The CBN has imposed restrictions on certain types of forex transactions, such as the sale of foreign currencies to individuals, to prevent speculation and maintain a stable exchange rate.
  5. Increased Reserves: The CBN has been building up its foreign exchange reserves to increase its ability to intervene in the forex market and maintain a stable exchange rate.

These interventions have helped to stabilize the naira and maintain a relatively stable exchange rate. According to the CBN, the naira has appreciated by about 10% against the US dollar since the beginning of 2022.

However, some financial experts have expressed concerns that the CBN's interventions may not be sustainable in the long term. They argue that the interventions may lead to:

  1. Inefficient allocation of resources: The CBN's interventions may lead to inefficient allocation of resources, as the bank may be buying and selling foreign currencies at rates that are not reflective of market fundamentals.
  2. Inflationary pressures: The CBN's interventions may lead to inflationary pressures, as the increased money supply in the economy may lead to higher prices.
  3. Depreciation of the naira: The CBN's interventions may not be effective in the long term, and the naira may still depreciate against other major currencies.

Overall, while the CBN's interventions have helped to stabilize the naira, they may not be a sustainable solution to the country's forex challenges. It is essential for the CBN to adopt a more sustainable approach to managing the forex market, such as promoting foreign investment and improving the country's trade balance.