The Nigerian Autonomous Foreign Exchange (NAFEM) recorded a total transaction volume of $1.83 billion in one week, indicating an increase in foreign exchange (FX) activities, figures compiled by THISDAY showed.
The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, who also confirmed the significant rise in FX transactions during an interactive session organised by the Senate Committees on Finance, Appropriations, Banking Insurance and other Financial Institutions, on Friday, said recent reforms initiated by the central bank were yielding positive results in the FX market as evidenced by the liquidity boost.
The increased dollar liquidity appeared to have reaffirmed investors’ growing confidence.
Also speaking at the session, the Minister of Finance/Coordinating Minister of the Economy, Mr. Wale Edun, said the federal government was committed to ending the current pains of Nigerians through a social security strategy.
Equally, the CBN yesterday announced that it has removed the ±2.5 per cent cap spread on interbank FX transactions. The CBN disclosed this in a circular dated February 8, 2024, signed by the Director, Financial Markets Department, Dr. Duke Omotunde, obtained yesterday.
It stated: “A key objective of the ongoing foreign exchange market reforms by the CBN is to promote a market-based price discovery system. Consequently, the bank hereby discontinues any cap on the spread on interbank foreign exchange transactions and restrictions on the sale of interbank proceeds.
“Authorised Dealers are to continue to conduct their foreign exchange transactions on a “Willing Buyer and Willing Seller” basis. In addition, they are to strictly adhere to high ethical standards in their dealings in the foreign exchange markets. This includes but not limited to adopting appropriate price disclosures and transparency for transactions.”
A breakdown of the daily activities from Monday to Friday compiled by THISDAY, showed that on Monday, the official FX market recorded turnover of $584.53 million; Tuesday, it reduced to $465.29 million; on Wednesday it was $209.93 million; Thursday it was $321.23 million and on Friday, it was $253.77 million.
Also, the naira remained stable yesterday, as it closed at N1,500/$1 on the parallel FX market, same as Thursday’s rate, while it appreciated slightly on the official window to N1,469/$1 from the N1,479/$ recorded on Thursday.
However, speaking during the interactive session organised by the Senate Committees on Finance, Appropriations, Banking Insurance and other Financial Institutions, Cardoso said the reforms initiated by the central bank were yielding positive results in the FX market as evidence by the liquidity boost.
The apex bank boss also said the CBN had resolved to put an end to the “Ways and Means” regime until the federal government defrayed its outstanding debts.
He said, “We have already begun to see shifts in a positive direction. Indeed, we have already begun to see positive results with significant interest from foreign portfolio investors which was a concern that has already begun to supply the much-needed foreign exchange to the economy.
“For example, the upward trend of the last few days; we have had over $1 billion that have come into the market. And this, quite frankly, is the answer to the question.”
The CBN governor however, pointed out that the apex bank lacked the magic wand to stabilise the naira exchange rate, maintaining that, “Nigerians have to reduce frequent demand for dollars for business and personal needs.”
Cardoso said Nigerians’ insatiable love for the dollar, foreign goods and services was seriously overstretching the value of the naira against foreign currencies.
He urged Nigerians, especially the elite, to reduce their appetite for foreign currency, consumption and usage of foreign goods, and patronage of foreign schools and hospitals.
He told the lawmakers that the current reforms had generated significant interest from foreign portfolio investors.
Cardoso added, “The Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira
“Factors contributing to this situation include speculative forex demand, inadequate FX supply increased capital outflows, and excess liquidity.
“To address exchange rate volatility, a comprehensive strategy has been initiated to enhance liquidity in the forex markets.”
He said, “This includes unifying forex market segments, clearing outstanding forex obligations, introducing new operational mechanisms for BDCs and IMTOs, enforcing the Net Open Position limit, Open Market Operations, and adjusting the remunerable Standing Deposit Facility cap among others.
“The measures, aimed at ensuring a more market-oriented mechanism for exchange rate determination, will boost foreign exchange inflows, stabilise the exchange rate, and minimise its pass-through to domestic inflation.
“Indeed, they have already started yielding early results with significant interest from Foreign Portfolio Investors (FPIs) that have already begun to supply the much-needed foreign exchange to the economy.”
He added, “For example, upwards of $1 billion in the last few days came in to subscribe to the Nigeria Treasury Bill auction of N1 trillion which saw an oversubscription earlier this week.
“Our measures aimed at improving dollar supply into the Nigerian economy has significant potential in taming the volatility of the exchange rates. However, for these measures to be sustainable, we must as a country, moderate our demand for FX.
“It is also clear that the task of stabilising the exchange rate, while an official mandate of the CBN, would necessitate efforts beyond the bank itself.
“It will also include actions by corporates and individuals to reduce our frequent demand for the dollar for business and personal needs”.
Also, commenting on current inflationary pressure on the economy, the CBN governor, who attributed the food inflation to insecurity, and natural causes, however, assured Nigerians that the headline index will reduce to 21.4 per cent in 2024.
“On our side at the CBN, we have responded with significant monetary policy tightening to reign in inflationary pressure. Empirical analysis has established that money supply is one of the factors fueling the current inflationary pressure.
“For instance, an analysis of the trend of the money supply spanning over nine months shows that M3 increased from N52.01 trillion in January 2023 to N68.25 trillion in November 2023 representing N16.24 trillion or 31.22 percent increase over the period.
“Increase in Net Foreign Asset (NFA) following the harmonisation of exchange rates and the N3.22 trillion ways and means advances were the major factors driving the increase in money supply,” he added.
On the CBN’s Ways and Means regime, Cardoso told the lawmakers that the central bank had decided to discontinue its exposure to the federal government.
He said, “I am pleased to note the Fiscal Authorities efforts in discontinuing ways and means advances. This is also in compliance with section (38) of the CBN Act (2007), the Bank is no longer at liberty to grant further ways and means advances to the federal government until the outstanding balance as of December 31, 2023, is fully settled.
“The bank must strictly adhere to the law limiting advances under ways and means to five per cent of the previous year’s revenue.
“We have also halted quasi-fiscal measures of over N10 trillion by the Central Bank of Nigeria under the guise of development finance interventions which hitherto contributed to flooding excess Naira and raising prices to the levels of Inflation we are grappling with today.”
He said, “The CBN’s adoption of the inflation-targeting framework involves clear communication and collaboration with fiscal authorities to achieve price stability, potentially leading to lowered policy rates, stimulating investment, and creating job opportunities.
“Our MPC meeting on the 26th and 27th of February is also expected to review the situation and take further decisions on these important issues.”
In his remarks, Edun, said the federal government was committed to ending the current pains of Nigerians through a social security strategy.
Edun said, “In terms of the social protection that is uppermost at this moment, we have the social protection measures through direct payments. Direct payments, properly done biometrically can lead to a reduction in poverty.
“It is proven empirically worldwide, that is an issue that is being looked at now. It is our commitment to as soon as possible, resume the social investment programme and the safety net, particularly at this time.
“So, in a short term the commitment is to face the pains of Nigerians and to do everything that can be done to ease those pains and of course, on the foreign exchange side to bring about stability.
“On expenditure, we are looking at ensuring government expenditure is carefully spent. Even the President has reduced his expenditure and so for the Medium Term let us be assured that the monetary and the fiscal policies which are being implemented are going to increase production, increase funding for the government will play its role.”
He stressed that difficult reforms take time for the benefits to come through, adding that, the “duty is to ensure in a short term we minimise the pains to the poor and the most vulnerable”.
Top government functionaries including the Minister of Budget and National Planning , Senator Atiku Bagudu , Agriculture and Food Security, Senator Abubakar Kyari, also addressed the senators on the state of the economy.
Kyari attributed the current food crisis to the 2022 flooding, the naira redesign, and insecurity.
He also warned that the federal government may consider sealing off the nation’s borders once again to stop excessive smuggling of food items outside the country.
He said despite the fact that doing so would be against the ECOWAS charter, it remained the best way to go.
He said smuggling of food produce persisted because the current FX crisis in the country had made the CFA francs to appreciate in value against the naira.
“If this economic situation continues then we may have to seal up the border which is against the ECOWAS issue or produce for the whole of West Africa, that is the unfortunate thing,” he added.
Chairman, Senate Committee on Finance, Senator Sani Musa, in series of posers fired at the ministers and CBN governor, queried the $3.3 billion Afreximbank loan collected to boost FX liquidity, saying the expected positive effects had not being felt months after.
The Chairman, Senate Committee on Banking, Insurance and Other Financial Institutions, Senator Tokunbo Abiru, said the CBN should furnish the Senate with relevant documents requested from Cardoso, particularly the bank’s audited reports and budget.
He urged Nigerians to bear with the current administration, stressing that the current food crisis was not caused by President Bola Tinubu’s administration.
The Chairman, Senate Committee on Finance, Solomon Adeola, further challenged Cardoso to deviate from the past practices by ensuring that he makes the budget of the apex bank available to the National Assembly for proper scrutiny and approval.
He insisted that the CBN governor must submit to the oversight function of the Senate Committee on Banking and Currency going forward.
CBN: Market Reforms Will Stabilise Naira
Meanwhile, the apex bank has expressed optimism that the reforms it has implemented in the FX market will stabilise the market and strengthen the Naira.
CBN Deputy Governor, Economic Policy, Mr. Muhammad Abdullahi, gave the assurance while declaring open the 2023 Economic Policy Directorate Retreat of the bank with the theme, “Foreign Exchange Market Reforms and Price Stability in Nigeria”.
He said the measures so far taken to make the Nigerian FX market more efficient had started to moderate the pressure in the foreign exchange market, with the massive reduction in the premium between the official rate and the Bureau De Change (BDC) segment.
Abdullahi, noted that the premium between the BDC and the official rate had narrowed to 12 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 admitting 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.
He said enumerated the steps were so far taken by the bank to unify the exchange rate and stabilise the FX market, including 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.
He said the CBN had 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.
According to him, 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 the 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.