In a notable shift in monetary strategy, the Central Bank of Nigeria (CBN) has acted to slow the rapid appreciation of the naira last week by mopping up approximately $189.80 million from the local foreign exchange market.
The intervention marks a rare move by the apex bank to purchase dollars rather than sell them, a tactic designed to absorb excess supply and prevent a volatile overshooting of the currency’s value.
The local currency had been on a sustained rally at the official window before retreating during the final three trading sessions of the week.
According to a market report from TrustBanc Financial Group Limited, the naira strengthened across both primary segments, gaining ₦9.09 week-on-week to close at ₦1,346.32/$ in the official window.
The parallel market saw an even more pronounced gain of ₦60.00, closing at ₦1,340/$. This dual appreciation has resulted in a historic narrowing of the exchange rate spread, which plunged from 3.29% to a mere 0.47%, signaling an almost total convergence between official and informal rates.
Financial analysts had raised concerns that if the naira continued to appreciate too quickly, it might inadvertently spook foreign investors holding positions in Nigeria’s fixed-income market.
A rapid increase in the currency’s value could incentivize these investors to sell off their securities and exit the market to lock in profits, a move that would trigger a sudden, massive demand for the U.S. dollar and potentially destabilize the economy.
By stepping in to buy the excess dollars, the CBN effectively moderated these gains to maintain a predictable environment for international capital.
On the broader macroeconomic front, the naira continues to find support in firmer global oil prices and a steady rise in the nation’s foreign reserves.
Furthermore, the persistent influx of capital driven by ongoing fiscal reforms has provided a cushion against geopolitical risks.
This latest intervention by the CBN is seen by market observers as a sophisticated balancing act protecting the currency’s newfound strength while ensuring that the pace of appreciation does not undermine investor confidence or lead to an abrupt spike in dollar outflows.