The Central Bank of Nigeria (CBN) will apply part of the $2.2 billion Eurobond proceeds to exit its numerous swaps as it allayed the market’s fear of further Naira devaluation in 2025.
“No, we are not devaluing”, a dependable source in the apex was quoted by InsideBusinessNg to have disclosed in an exclusive interview last week.
It was confirmed that the apex bank would not use the Eurobond proceeds to intervene in the foreign exchange market but to use them to exit the swaps, remove the encumbrances in the foreign reserves, and build the nation’s foreign reserves which currently hover around $42 billion to strengthen the naira.
Nigeria successfully raised $2.2 billion through last year’s Eurobond auction, a significant milestone in efforts to rectify its escalating fiscal deficit.
Nigeria recorded a total subscription of $8.8 billion, but only $2.2 billion was allotted.
The government planned to apply the proceeds to augment the 2024 budget, which is under strain due to persistent revenue shortfalls and mounting public spending.
The market’s expectations of further depreciation of Nigeria’s currency in the official market were spurred by a wide premium between the official window and the parallel market, reaching N200.
This development raised fears that the CBN will devalue the naira again to harmonise exchange rates between the markets and trim down the premium to the region of N20 -N30.
“We will not do that”, the CBN source said.
Close to the twilight of last year, the naira depreciated with the official window hitting an all-time low of almost N1,700 before appreciating later to N1,580.
The parallel market, however, failed to follow the appreciation at the official window, thereby creating a wide premium of N200.
“CBN isn’t looking forward to conducting interventions in the foreign exchange market but to exit the swaps. It plans to defend the naira exchange rate within a band of N1,538-N1,580 at which it has closed the market for 2024”.
By its calculation, it will muster the strength to keep the naira within the band by reducing its swap transactions and no new swaps within the first quarter of 2025. “We will not owe any fresh swap”, the bank’s official assured.
The CBN plans to apply the $2.2 billion Eurobond to exit all the existing swaps, which it expects would get liquidity back into the highly encumbered reserves and strengthen the naira exchange rate.
The bank’s official said, “By the time we remove the encumbrances and do a few spots at the interbank, we are hopeful that the naira will appreciate in the first quarter”.
