Recent reports have shed light on the strategies being considered by the Central Bank of Nigeria (CBN) to counter the ongoing decline of the naira against the US dollar.
Market Inundation with Dollars
A member of the CBN’s board, who spoke with The Nation, disclosed that one of the primary measures being contemplated involves a significant infusion of dollars into the market.
The anonymous source, sharing insights with the publication, unveiled the apex bank’s intention to inject foreign exchange into the market as a means to stabilize the volatile exchange rate.
The source emphasized, “At this juncture, the bank is poised to introduce foreign exchange into the market, aiming to establish stability in the exchange rate.
This move aligns with the purpose of maintaining reserves to ensure the naira’s stability in fluctuating times.”
Previous Interventions and Routine Management
The board member underscored that the CBN has previously undertaken interventions by infusing funds into the foreign exchange market when deemed necessary.
Such interventions, he described, are part of the bank’s routine management functions.
He further elucidated, “This is essentially a management practice.
Presently, it is not only desirable but essential to support the naira.
The decision to adopt these measures is prudent and imperative in the current circumstances.”
Balancing Demand and Supply
The CBN board member argued that halting the further weakening of the naira necessitates a multifaceted approach, with one key aspect being the significant increase in the availability of foreign exchange.
He commented, “To address the ongoing challenges, it is imperative to inundate the market with foreign exchange.
While the government may not have initially intended to implement demand management policies, the circumstances warrant their consideration.
In a scenario where a free market operates and demand is overwhelming, it becomes crucial to implement policies that regulate and curtail that demand.”
He added, “Given the limited availability of foreign exchange, addressing the issue requires a dual-pronged approach, addressing both the demand and supply aspects.”