The Efficacy of Foreign Exchange Interventions by the Central Bank of Nigeria on Nigeria’s Key Macroeconomic Variables

This study investigates the macroeconomic efficacy of foreign exchange (FX) interventions by the Central Bank of Nigeria (CBN), focusing on the massive injection of $15.3 billion during the fiscal year 2022. Despite these record-setting interventions intended to stabilize the local currency and support domestic production, key macroeconomic variables exhibited significant divergence from policy targets: official and parallel exchange rates depreciated sharply, headline inflation escalated to 22%, and real sector productivity contracted. Utilizing a Structural Vector Autoregression (SVAR) framework alongside empirical data from the Central Bank of Nigeria and the National Bureau of Statistics, this paper evaluates the transmission channels (the interest rate, credit, and trade channels) of FX interventions on real sector growth, exchange rate stability, inflation, and aggregate Gross Domestic Product (GDP) growth. The empirical results demonstrate that while FX injections yield marginal, transient structural support to the nominal exchange rate, their long-term efficacy is severely constrained by structural bottlenecks, expansionary domestic monetary conditions, and severe parallel market premiums. The paper concludes that protracted, one-sided FX interventions cannot substitute for deep-seated structural reforms and a transition toward enhanced exchange rate flexibility.