INTERVENTION ANNOUNCEMENTS AND NAIRA MANAGEMENT: EVIDENCE FROM THE NIGERIAN FOREIGN EXCHANGE MARKET

Abstract

Many studies establish how foreign exchange intervention affects the exchange rates. Intervention announcement do also have impact different for the actual financial involvement. Recent evidence has tested this for some countries but none has investigated Nigeria, despite volume of interventions and its announcements made via press circulars by the central bank. The paper applies daily data, from January 02, 2001 to May 15, 2023, to verify the impact of intervention announcements on the Nigerian exchange rate. The paper evaluates the relationship based on an event driven baseline specification, which measure the impact of announcement period windows on the exchange rate. The paper finds conclusive evidence of highly significant impacts that past, contemporaneous and future intervention announcements cause appreciation shocks. The naira is revealed to appreciate by 3.5% upon the intervention announcement, and this further increases to 4.49%, 4.55% and 5.22%, on one day, two day, three days after, but subsequently slow down on fourth day (5.21%) and fifth day (3.45%) after the intervention announcements. Robustness test based using alternative data frequency for the estimation yields close (different) result for the monthly (quarterly) periodicity, therefore supposes that the data frequency matters. The result has implications for future conduct of interventions and conventional monetary policies. Amongst others, higher market uncertainty, low credibility of transmission mechanism and possible predominance of global over the national factors may contribute to influences the effectiveness of interventions. The paper’s major limitation is that it excludes the influence of actual intervention, via sales and purchases of dollar, by the central bank.