INTRO: In April 7, 2025, the Central Bank of Nigeria (CBN) intervened in the foreign exchange market with a $197.71 million injection, following a sharp decline in global oil prices triggered by new U.S. trade tariffs. This proactive move reflects a series of critical reasons tied to Nigeria’s economic structure, global market dynamics, and the CBN’s monetary policy objectives.
The reasons why the CBN intervened amid oil price drop and US tariffs are:
1. Decline in Crude Oil Prices: Nigeria relies on crude oil for over 90% of its foreign exchange earnings. The drop in oil prices—over 12% to around $65.50 per barrel—posed an immediate threat to Nigeria's revenue and external reserves. A sustained dip in oil prices can reduce dollar inflow, weaken the naira, and destabilize the economy. CBN’s intervention was necessary to mitigate these risks.
2. Impact of U.S. Trade Tariffs on Global Markets: The recent imposition of sweeping trade tariffs by U.S. President Donald Trump has created shockwaves across global markets, particularly in Emerging Market and Developing Economies. The tariffs have not only affected global trade flows but also triggered uncertainty that led to the drop in oil prices. Nigeria, as an oil-dependent economy, is highly vulnerable to such external shocks, making it critical for the CBN to step in and stabilize the forex market.
3. Stabilization of the Foreign Exchange Market: Between April 3 and 4, 2025, significant fluctuations were observed in Nigeria’s forex market due to global macroeconomic shifts. To maintain investor confidence and prevent panic, the CBN injected dollars into the system to support orderly market functioning. This intervention helps avoid speculation and hoarding, which can lead to rapid naira depreciation.
4. Ensuring Liquidity for Authorized Dealers: The CBN’s sale of $197.71 million to authorized dealers ensures that commercial banks and other financial institutions have enough foreign exchange liquidity to meet the needs of their customers. This move helps in maintaining smooth import and export transactions, which are vital for Nigeria’s economic activities.
5. Preserving the Value of the Naira: A key objective of the CBN is to maintain a stable exchange rate. With oil prices down and forex inflows threatened, the naira faced depreciation pressures. By injecting dollars into the market, the CBN aimed to defend the naira from excessive weakening, which could lead to inflation and reduced purchasing power among Nigerians.
6. Commitment to a Transparent and Efficient Market: In its official statement, the CBN reaffirmed its commitment to maintaining a transparent and efficient forex market. The intervention aligns with its broader monetary policy strategy to ensure price stability and economic resilience in the face of global volatility.
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