Drawing a distinction between central bank deeds (actual foreign exchange interventions) and words (official announcements and the governor's speeches), this paper examines the effects of the Central Bank of Nigeria's interventions, its official announcements, and the governor's speeches on the naira foreign exchange market.
A causal impact intervention analysis is conducted using a Bayesian diffusion-regression state-space model using daily data from January 2023 to 9th August 2024. Counterfactual scenarios are generated to isolate and quantify the effects of actual interventions, public announcements, and speeches on the exchange rate.
Direct foreign exchange interventions produce an insignificant and short-lived impact, causing initial depreciation of the naira within weeks, followed by a rebound. On the other hand, the bank's announcements and the governor's speeches trigger significant and persistent depreciation, with the market reacting more strongly and for longer to verbal signals than to direct interventions.
The paper contributes to the literature on central bank communication and foreign exchange intervention by applying a Bayesian diffusion-regression state-space framework to jointly evaluate policy actions and verbal signals in an oil-exporting emerging economy, showing that communication can dominate intervention in shaping exchange rate expectations.
