Figures gathered by newsmen  revealed that the Nigerian Autonomous Foreign currency (NAFEM) registered a total transaction volume of $1.83 billion in a single week, showing a rise in foreign currency (FX) transactions.

During an interactive session yesterday hosted by the Senate Committees on Finance, Appropriations, Banking Insurance, and Other Financial Institutions, Mr. Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), confirmed the notable increase in FX transactions and stated that recent reforms implemented by the central bank were having a positive effect on the FX market as demonstrated by the increase in liquidity.

The growing confidence of investors seemed to be reaffirmed by the enhanced dollar liquidity.
The federal government is dedicated to putting a stop to Nigerians’ current suffering through a social security policy, according to Mr. Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, who also spoke at the event.

Similarly, the CBN declared Wednesday that the cap spread of ±2.5 percent on interbank foreign exchange transactions has been eliminated. This was revealed by the CBN in a circular dated February 8, 2024, which was received yesterday and signed by Dr. Duke Omotunde, Director of the Financial Markets Department.
“Promoting a market-based price discovery system is a key objective of the CBN’s ongoing foreign exchange market reforms,” the statement read. As a result, the bank hereby lifts all limitations on the sale of interbank proceeds as well as any ceiling on the spread on interbank foreign currency transactions. “Willing Buyer and Willing Seller” terms shall be applied to all foreign exchange transactions carried out by Authorized Dealers. Furthermore, when conducting business in the foreign currency markets, they must rigorously adhere to the highest ethical standards. This include, but is not restricted to, implementing suitable pricing disclosures and transaction transparency.

Thisday’s analysis of the official FX market’s daily activity from Monday through Friday revealed that on Monday, turnover was $584.53 million; on Tuesday, it dropped to $465.29 million; on Wednesday, it was $209.93 million; on Thursday, it was $321.23 million; and on Friday, it was $253.77 million.
Additionally, the naira held steady Friday, closing at N1,500/$1 on the parallel FX market, which was the same rate as it did on Thursday. On the official window, it increased marginally to N1,469/$1, up from N1,479/$ on Thursday.

Speaking at the interactive session hosted by the Senate Committees on Finance, Appropriations, Banking Insurance, and Other Financial Institutions, Cardoso asserted that the increase in liquidity was proof that the central bank’s reforms were having a positive impact on the foreign exchange market.
The head of the central bank further stated that the CBN was determined to terminate the “Ways and Means” program until the federal government paid off its outstanding obligations.
“We’ve already started to notice positive changes,” he stated. In fact, we have already started to notice encouraging outcomes, drawing a lot of attention from overseas portfolio investors, which was a worry that has already started to provide the economy with the much-needed foreign exchange.

As an illustration, consider the recent increasing trend in which over $1 billion has entered the market. And to be really honest, this is the response to the query.
The governor of the Central Bank of Nigeria (CBN) asserted that “Nigerians have to reduce frequent demand for dollars for business and personal needs,” pointing out that the central bank lacked the magic wand to stabilize the naira exchange rate.
According to Cardoso, Nigerians are severely overvaluing the naira relative to other currencies because of their insatiable passion for the dollar and other foreign products and services.
He exhorted Nigerians, particularly the wealthy, to cut back on their desire for foreign money, their use of and consumption of foreign products, and their support of international hospitals and educational institutions.

He informed the lawmakers that overseas portfolio investors were expressing a great deal of interest in the present reforms.
Cardoso continued, “The value of the naira is continuously declining as a result of increased demand pressures on the Nigerian foreign exchange market.”
“Speculative demand for foreign exchange, insufficient foreign exchange supply, more capital outflows, and excess liquidity are some of the factors causing this predicament. “A comprehensive strategy has been initiated to enhance liquidity in the forex markets to address exchange rate volatility.”
He stated, “Among other things, this entails bringing new operational mechanisms for BDCs and IMTOs, clearing outstanding forex obligations, enforcing the Net Open Position limit, Open Market Operations, and adjusting the remunerable Standing Deposit Facility cap.”

“The measures will increase foreign exchange inflows, stabilize the exchange rate, and minimize its pass-through to domestic inflation. They are intended to ensure a more market-oriented mechanism for exchange rate determination.”As a matter of fact, they have already began to show promising early results, drawing a lot of attention from Foreign Portfolio Investors (FPIs), who are starting to provide the economy with much-needed foreign exchange.
He went on, “For instance, in the last few days, over $1 billion has been contributed to the N1 trillion Nigeria Treasury Bill auction, which saw an oversubscription earlier this week.

“Our efforts to increase the amount of dollars flowing into the Nigerian economy have a great deal of promise to reduce exchange rate volatility. But in order for these policies to last, our nation needs to control its desire for foreign exchange.It is also evident that although the CBN has an official mission to stabilize the currency rate, doing so would need actions outside of the bank.
“It will also involve corporate and individual efforts to lessen our recurrent reliance on the dollar for both personal and business needs.”

The governor of the CBN, who also spoke on the current inflationary strain on the economy, told Nigerians that the headline index will drop to 21.4% in 2024, attributing food inflation to natural factors and insecurity.
“In order to control inflationary pressure, the CBN has significantly tightened monetary policy in response. The money supply is one of the things driving the current inflationary pressure, according to empirical evidence.

For example, an examination of the money supply pattern over a period of nine months reveals that M3 expanded by N16.24 trillion, or 31.22 percent, from N52.01 trillion in January 2023 to N68.25 trillion in November 2023.
“The main factors driving the increase in money supply were the N3.22 trillion ways and means advances and the increase in Net Foreign Asset (NFA) following the harmonisation of exchange rates,” he continued.

Cardoso informed the MPs that the CBN had chosen to cut off its interaction with the federal government about the Ways and Means regime.
“I am happy to note the Fiscal Authorities’ efforts in stopping ways and means advances,” he remarked. Additionally, this complies with CBN Act of 2007 section (38) which states that the Bank cannot continue to advance ways and means to the federal government until the outstanding balance as of December 31, 2023, is entirely settled.
“The bank is required to strictly abide by the law that caps advances under ways and means at 5% of revenue from the prior year.”We have also stopped the Central Bank of Nigeria’s quasi-fiscal measures worth over N10 trillion that were previously contributing to the overabundance of Naira and price increases that led to the current levels of inflation. These actions were carried out under the pretense of development finance initiatives.
“The CBN’s implementation of the inflation-targeting framework entails transparent communication and cooperation with fiscal authorities to attain price stability, which may result in reduced policy rates, increased investment, and the creation of job opportunities,” he stated.It is also anticipated that at our MPC meeting on February 26 and 27, we will assess the situation and make more decisions regarding these crucial matters.

In his speech, Edun declared that the federal government was dedicated to implementing a social security plan that would alleviate Nigerians’ present suffering.
In summary, the commitment is to acknowledge the suffering of Nigerians, do all within our power to alleviate their suffering, and naturally, stabilize the foreign exchange market.

When it comes to spending, we want to make sure that public funds are used wisely. Since even the president has cut down on spending, we can be confident that the fiscal and monetary policies in place will boost output and ensure that the government can fulfill its mandate in the medium term.

“We have the social protection measures through direct payments, which are the most important ones right now,” stated Edun. When administered biometrically, direct payments have the potential to lower poverty.

“That is an issue that is currently being looked at, as it has been empirically established internationally. We promise to quickly pick up where we left off with the safety net and the social investment program, especially now.

In addition to stating that the “duty is to ensure in a short term we minimise the pains to the poor and the most vulnerable,” he emphasized the need for patience as beneficial changes take time to materialize.

Prominent government officials also briefed the senators on the status of the economy, including Senators Abubakar Kyari, who is the minister of agriculture and food security, and Atiku Bagudu, who is the minister of budget and national planning.

Kyari blamed insecurity, the naira devaluation, and the flooding in 2022 for the current food crisis.

In order to reduce the excessive smuggling of food products beyond the country, he also issued a warning that the federal government might think about closing the borders once more.

He added that even though it would violate the ECOWAS charter, it was still the wisest course of action.

He claimed that the country’s ongoing foreign exchange crisis had caused the CFA franc to gain value relative to the naira, which was why food produce smuggling continued.

“The unfortunate thing is that if this economic situation persists, we might have to produce for the entire West African continent or close the border, which goes against the ECOWAS issue,” he continued.

In a series of questions directed at the ministers and the governor of the CBN, Senate Committee on Finance Chairman Senator Sani Musa questioned the $3.3 billion loan obtained from Afreximbank to increase foreign exchange liquidity, claiming that months later, the anticipated benefits had not materialized.

Senator Tokunbo Abiru, the chairman of the Senate Committee on Banking, Insurance, and Other Financial Institutions, stated that the CBN ought to provide the Senate with the pertinent information it has asked from Cardoso, including the bank’s budget and audited reports.

He pleaded with Nigerians to put up with the existing government, emphasizing that President Bola Tinubu’s administration was not to blame for the current food crisis.
Solomon Adeola, the chairman of the Senate Committee on Finance, went on to push Cardoso to break with tradition by making sure the National Assembly had access to the top bank’s budget for appropriate review and approval.

He stressed that moving forward, the CBN governor would have to yield to the Senate Committee on Banking and Currency’s supervision role.

CBN: Naira Will Stabilize With Market Reforms

The central bank, meanwhile, is optimistic that the FX market reforms it has put in place will stabilize the market and boost the value of the Naira.

The guarantee was made by Mr. Muhammad Abdullahi, CBN Deputy Governor, Economic Policy, who also announced the opening of the bank’s 2023 Economic Policy Directorate Retreat, which has the theme “Foreign Exchange Market Reforms and Price Stability in Nigeria.”

With the significant decline in the difference between the official rate and the Bureau De Change (BDC) sector, he claimed that the steps implemented thus far to improve the efficiency of the Nigerian foreign currency market had begun to alleviate pressure on the market.
According to Abdullahi, despite hedging and speculative activity, the impact of the bank’s policy actions was validated by the narrowing between the official and unofficial markets, which saw the premium between the BDC and the official rate narrow to 12% by the end of January 2024 from 61.93% in January 2023.

While acknowledging that there were still certain difficulties, the broader macroeconomic policy goal of guaranteeing sustainable growth was still threatened by significant downside risks from inflationary pressures that affected both domestic and foreign investment.

He listed the actions the bank has taken so far to stabilize the foreign exchange market and unify the exchange rate. These actions include the removal of access restrictions to the foreign exchange market in Nigeria on approximately 43 items in order to remove market distortions and the re-adoption of the market-determined rate known as “willing buyer, willing seller.”

He stated that the CBN was working with the fiscal authorities to coordinate policy actions to encourage foreign investment and that the CBN has cleared a sizable chunk of the FX backlog from matured forward contracts.

He claims that in order to lessen the difficulties encountered in stabilizing the foreign exchange market, the CBN harmonized bank reporting requirements regarding their foreign currency exposure and released updated guidelines for Nigeria’s International Money Transfer services. These guidelines aim to facilitate business operations for International Money Transfer Operators (IMTOs), increase capital inflows and remittances, and restrict the outflow of foreign currency and illicit financial flows.


By xplora

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