The Central Bank of Nigeria (CBN) has expressed optimism that the reforms it has implemented in the foreign exchange market will stabilise the market and improve the value of the naira.
Muhammad Abdullahi, the Bank’s deputy governor, Economic Policy, stated this in Abuja while declaring open the Economic Policy Directorate Retreat of the Bank themed: ‘Foreign Exchange Market Reforms and Price Stability in Nigeria’.
According to him, the measures taken to make the Nigerian foreign exchange market more efficient have started to moderate the pressure in the market, leading to reduction in the premium between the official rate and that at the Bureau De Change (BDC) segment.
He noted that the premium between the BDC and the official rate narrowed to 12.0 per cent in end-January 2024 from 61.93 per cent in January 2023, adding that the narrowing between the official and unofficial markets validated the impact of policy actions by the Bank, despite hedging and speculative activities.
While acknowledging that some challenges remained as inflationary pressures continued to pose substantial downside risks to domestic and international investment and the overall macroeconomic policy objective of ensuring sustainable growth, the CBN Deputy Governor said that the steps so far taken by the Bank to unify the exchange rate and stabilise the foreign exchange market.
He said, “The steps taken by the Bank, includes the re-adoption of the “willing buyer, willing seller” market-determined rate and the lifting of access restriction to forex from the Nigerian foreign exchange market on some 43 items to eliminate distortions in the forex market.
“To mitigate the challenges experienced in stabilising the foreign exchange market, the CBN harmonised the reporting requirements on foreign currency exposure of banks, and issued revised guidelines for International Money Transfer services in Nigeria to enhance ease of doing business for International Money Transfer Operators (IMTOs), boost remittance and other capital inflows, limit the outflow of foreign currency and illegal financial flows.”
He also noted that the bank has cleared a significant portion of the FX backlog from matured forward contracts and was collaborating with the fiscal authorities to coordinate policy initiatives to stimulate foreign investment.
Other measures taken by the bank, according to him, include the removal of the allowable limit of the exchange rate quoted by IMTOs to liberalise the Nigerian foreign exchange market and the issuance of a circular on financial markets price transparency to enhance efficient price discovery and orderly conduct in the foreign exchange market.
“We have a renewed focus on the core mandate of the Bank, which is to maintain price stability, while delivering interest and exchange rates that create a conducive environment for investment and economic growth.
“This is reinforced by our commitment to bringing inflation and exchange rates within our medium-term target using all policy and strategic tools at our disposal,” Abdullahi said.
Earlier in her welcome address, Aderinola Shonekan, the director, research department, noted that the Bank had undertaken bold reforms to address some of the challenges and structural constraints the economy currently faces.
She said the retreat sought to generate valuable insights and actionable recommendations to guide monetary policy decisions under the new inflation-targeting framework.
Participants at the retreat were drawn from the Research, Monetary Policy, Trade and Exchange, Statistics, and Financial Markets Departments of the Bank, as well as strategic external stakeholders.