Defending the naira has become more expensive as Nigeria’s foreign reserves declined by $2.2 billion in October 2018 alone — the largest monthly drop since 2015.
Data from the Central Bank of Nigeria (CBN) has shown that the reserves shed $2,243,157,059 in October, moving from $44,305,099,104 on the last working day of September to $42,061,942,045 as at October 30, 2018.
The country’s foreign reserves, which saw a remarkable surge in 2018, following improved oil prices, and hitting $47.8 billion in June, has begun to take a downward turn due to shocks from the US market.
On September 26, 2018, the US Federal Reserve decided to lift its benchmark overnight lending rate by a quarter of a percentage point to a range of two percent to 2.25 percent.
This has made the biggest economy in the world more attractive to investors, who have since started voting their monies out of emerging markets like Nigeria, causing potential currency fluctuations and depreciation.
To avoid depreciation of the naira, the CBN has decided to continuously intervene in the foreign exchange market to keep the naira stable at 360 to 364 to the greenback.
Explaining this in Bali, Indonesia, at the just concluded World Bank and IMF meetings, Godwin Emefiele, the CBN governor said the bank will save the naira rather than build more reserves.
“You can only build reserve buffers if you want to hold on to the reserves while allowing your currency to go and wherever it goes is something else,” Emefiele had said.
“It is a choice we have to make and at this time, the choice for Nigeria is to maintain a stable exchange rate so that businesses can plan and we don’t create problems in the banking system.”
President Muhammadu Buhari has shown immense interest in defending the naira against external and internal forces, and has continuously rejected the devaluation of the naira.