Fitch Shares Its Insight on Naira Performance Against US Dollar
- Fitch Ratings has expressed caution about the stability of Nigeria's foreign exchange market despite several assurances
- The agency believes that the Central Bank of Nigeria and other efforts have yet to yield a positive result
- There is a glimmer of hope for CBN as Nigeria’s gross foreign exchange reserves rose to $39 billion in October
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Legit.ng journalist Dave Ibemere has over a decade of business journalism experience with in-depth knowledge of the Nigerian economy, stocks, and general market trends.
According to Fitch Ratings, Nigeria’s foreign exchange market continues to face instability despite various interventions from the Central Bank of Nigeria (CBN).
The rating agency stated this in its latest report published on its website.
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Fitch noted that although the Central Bank of Nigeria has made efforts, the pressure on the naira is still high.
The agency stated:
"The Central Bank of Nigeria is initiating several measures to address FX liquidity challenges and formalise FX activity to support the currency.
"As part of these efforts, the CBN plans to introduce an electronic FX matching platform for all transactions, aimed at enhancing transparency and providing intra-day prices in real-time starting December 1, 2024."
Fitch noted that the CBN has raised the monetary policy rate five times, cumulatively increasing it by 850 basis points to 27.25% since February 2024.
Despite these measures, the agency believes that the FX market has not yet stabilised, and the flexibility of the exchange rate remains untested.
Fitch speaks on forex reserves
The recent increase in Nigeria’s gross FX reserves, which rose to $39 billion in mid-October from $32.1 billion in mid-April, was attributed to official disbursements, remittances, portfolio inflows, and an improved trade balance.
Fitch forecasts FX reserves to rise to 6.1 months of current external payments by the end of 2024.
However, the agency raised concerns about the net reserves position, estimating that approximately 25% of current gross reserves are tied up in FX swaps with local banks. Fitch remarked:
“There is significant uncertainty over the size of net reserves...although we expect most of these to continue to be rolled over.”
CBN hopes for new naira-to-dollar exchange rate
Earlier, Legit.ng reported that the CBN revealed that Nigeria's foreign reserves had increased.
This came after the successful 500 million dollar bond issuance, which signifies investor confidence.
The increase would be a welcome development for the Central Bank of Nigeria in its fight to help the naira recover in the foreign exchange market.
Shortage of forex supply has always been a major reason the naira has come under intense pressure in both the black and official markets.
Proofreading by Nkem Ikeke, journalist and copy editor at Legit.ng.
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