Naira to stabilise on improved inflows, export proceeds – PwC

PwC, a professional firm, has said the Central Bank of Nigeria’s monetary tightening policies may see the naira maintain stability in the long run, adding that the calmness will persist on more liquidity inflows.

The London-based firm stated this in its economic outlook for the second half of the year titled “Navigating Economic Reforms”.

“Interventions by CBN may cause the Naira to stabilise in the long-term. However, these interventions may become subdued in the absence of improved capital flows and export proceeds to the foreign reserves,” PwC said.

It noted that the country’s capital importation has been on the rise since 2023 due to the CBN’s policy actions which is targeted at boosting investors confidence and is projected to stay on that path of increase this year.

“Capital importation increased by 6% to $1.1 billion in Q4 2023 from $1.0 billion in Q2 2023. The increase was driven by the growth in FPIs (189% increase from $106.9 million to $309.8 million) and FDIs (113.9% increase from $86 to $183.9) between Q2 and Q4 2023,” PwC said.

“Increase in FPIs was driven by increase in flows to money market instruments while foreign direct investments were driven by flows to equity investments, it added.

Since the assumption of the Yemi Cardoso-led central bank, the monetary authority has offset FX backlogs, increased the country’s monetary policy rate to 26.25% to maintain price stability and rein in inflation which is yet to be tapered.

Though the naira depreciated by 67.8% from N461.1/$ in May 2023 to N1,433.8/$ in May 2024 on the back of CBN policy action, it has begun to see some calmness.

The local currency had steadied at N1,490 in almost one month following moderation in demand for dollars by the end users.

In a recent interview, the central bank chief expressed confidence in the recent stability in the foreign exchange market, indicating a potential end to the period of volatility.

“I do believe that we have more or less seen the worst in terms of volatility. We are happy that the market is now such that willing buyers and willing sellers operate within the market,”.

“In the past two or three weeks after a period of volatility, we’ve seen a lot of stability within the market, there’s hardly been any movement in the currency,” Cardoso said.