Can CBN Governor, Cardoso stabilise Naira against Dollar by December amidst fluctuating rise?
By Matthew Denis
All hope is not lost despite the persistent rise of the dollar against the Naira ranging between N1000 to N1,200 though the country is gradually taking advantage of the current crisis in the Middle East with high demands of crude oil by the US and Europe which will affect the forex market positively.
The Governor of the Central Bank of Nigeria ( CBN), Dr. Olayemi Cardoso had in September while taking the mantle of leadership, outlined his plans to stabilise the country’s foreign exchange (FX) market and slow inflation.
He said Nigeria’s FX market has been experiencing high levels of volatility since the beginning of the current government led by President Bola Tinubu.
The gain the local currency recorded on Monday was quickly reversed on Tuesday when the naira fell to an all-time low of N1,000 to the dollar.
The CBN Governor stressed that the immediate plan to stabilise the naira would be for the apex bank to settle some financial obligations and make “transparent rules.”
“Key priority is what I will term an ‘operational issue.’ Right now we have a situation where – we are aware that there are unsettled obligations by the CBN.
“Whether it is 4 billion, 5 billion or 7 billion I don’t know but definitely the immediate priority will be to verify the authenticity and extent of what is owed.
“Apart from the operational, there is one that is system related that involves ensuring that we come up with rules that are open, transparent that any of the players in that area understands. We can expect foreign investors, portfolio investors – we can’t expect them if there is no open transparent system that everyone understands.
“In setting up those guidelines one will carry the relevant stakeholders along and the comment was made earlier that one should be ready to engage everybody and hear views.
“With those two things, though they may seem simple, will go a long way to ease up the restrictions we are having on people that want to come in.”
Cardoso also said to tackle the country’s inflation, the CBN would roll out evidence-based policies.
“There will be a need to significantly revamp the infrastructure in the CBN with respect to data. We will ensure that our data gathering capacity is significantly enhanced that is key in measuring your inflation.”
He added that avoiding deficit financing would tackle money supply issues.
The CBN Governor announced a four-point agenda designed to make the Naira the reference currency in Africa as part of the Financial System Strategy 2020 (FSS2020) and the elements of the agenda are: Currency Re-Denomination. Adoption of Inflation-Targeting Framework for the conduct of monetary policy but the spree of actualising the agenda is slow.
A peep into some of the technical guidelines by the Apex Bank on foreign exchange Include continuation of efforts to increase the availability of Foreign Exchange in order to ease the difficulties encountered by Nigerians in obtaining funds for Foreign Exchange transactions. The CBN is providing direct additional Funding to banks to meet the needs of Nigerians for Personal and Business Travel, Medical needs, and School fees, effective immediately. The CBN expects such retail transactions to be settled at a rate not exceeding 20 percent above the interbank market rate.
Despite all these policies the Apex bank seems to be overwhelmed the external factor of continued inflation rise as provided by the National Bureau of Statistics (NBS). The Governor needs to tighten up his team to meet his promise of ensuring that the Dollar depreciates to less than N700 before the end of this year.
The President of Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe in his words of encouragement confirmed that the Naira is regaining strength against the dollar in the forex Market on Sunday.
He said, “The development stems from the double-edged sword dollar liquidity injection and the mopping up of the naira through interest rate hikes.
“What is happening in the market and the continued naira rebounds is the manifestation of the CBN double-edged sword measures of dollar liquidity injection and naira mopping through the instrumentality of interest rates hikes.
“It is a good development as it is a greater risk to speculate, hoard and substitute naira for other currencies,” Gwadabe said.
Alhaji Gwadabe stressed that the speculators are usually interested in the elements of sustainability of the feat so far achieved, arguing that it is panic selling as against panic buying.
The expert tasked the management of CBN to continue to make clarifications and implement some of the association’s recommendations in charting a way forward for naira stability in the FX market.
Among the recommendations, he said, “The inclusion of the BDCs in the foreign exchange market in view of their roles in meeting the needs of the critical retail end sector.
“The BDCs are necessary in the demand measures of the apex bank, transaction monitoring mechanism and clients utilisation with correcting and moderating potentials.”
The ABCON Boss confessed that the country is experiencing increasing reserves due to increased demand of crude oil, its major export commodity.
“This is due largely to the U.S. increasing inventories and the escalation of tension in the Middle-East.”
As we continue to observe developments, there is the need to exercise caution in attacking the Naira as it all appears that the CBN seems poised to sustain the gains already recorded at the market.
Ultimately, as we gear into the last month of the year, the Apex Bank must declare all its arsenals in collaboration with stakeholders in the forex market to introduce policies that will urgently weaken the dollar against the Naira. For instance, waivers or incentives should be given to exporters for free trading activities.
The CBN Governor should seek Presidential Intervention in eradicating the bottlenecks at various Ports for exporters and formulate stringent conditions to discourage importers for the Naira to naturally regain its strength in the FX.
