CBN Identifies Forces Behind Naira's Crash Against US Dollar As New Exchange Rate Emerges

• The Central Bank of Nigerian has provided an explanation for the depreciation of the naira against the US dollar
• The apex bank blamed federal allocations as the reason in its last monetary policy meeting held on Tuesday, September 24, 2024
• Monetary policy meetings are gatherings where members of CBN and other institutions discuss and decide on key economic issues

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.

The Central Bank of Nigeria has hinted that the monthly disbursements from the Federation Account Allocation Committee (FAAC) to states are reasons for the poor performance of the Nigerian currency.

Yemi Cardoso stated this during the press briefing after the CBN's 297th Monetary Policy Committee (MPC) meeting.

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According to the CBN governor, there is a correlation between the disbursements and the poor performance of the naira.

He further revealed plans by the Central Bank of Nigeria (CBN) to monitor disbursement by the FAAC to determine its impact on prices.

His words:

"The MPC noted the continued growth in money supply recognising the need to curtail excess liquidity in the system as well as address foreign exchange demand pressures.”

“Members were also concerned about the growing level of fiscal deficit but acknowledged the efforts of the fiscal authorities not to resort to Ways and Means financing.

"Furthermore, members observed a strong correlation between FAAC releases and liquidity levels in the banking system as well as it impacts on the exchange rates.”

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“The committee therefore agreed to increase monitoring of future releases with a view to addressing its effects on price development.”

Naira crashes against dollar

Meanwhile, the naira on Tuesday, September 24, depreciated by N95.83 on the official foreign exchange (FX) market.

According to the data from FMDQ Securities Exchange Limited, the naira fell by 5.8%, with the dollar being quoted at N1,658.48 on Tuesday, September 24, compared to N1,562.66 quoted on Monday.

The fall of the come despite a 66% increase in dollar availability, with a total of $166.36 million exchanged on Tuesday, up from $100.21 million recorded the previous day.

The naira also depreciated in the parallel market, often called the black market. By Tuesday, the local currency had slipped to N1,675, losing N12 from the N1,663 quoted previously.

CBN orders banks to restrict accounts

Legit.ng earlier reported that the CBN directed that all funded accounts without a Bank Verification Number and National Identification Number be restricted with no further transactions permitted.

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From frying pan to fire?: How naira lost over 50% of its value after Cardoso took over from Emefiele

This was disclosed in a circular to all commercial, merchant, non-interest and payment service banks and other financial institutions and mobile money operators.

The December 1, 2023 circular, which applies to all institutions regulated by the CBN, ordered banks to place a "Post No Debit or Credit" on any unfunded account.

Proofreading by James Ojo Adakole, journalist and copy editor at Legit.ng.

Source: Legit.ng