The Central Bank of Nigeria (CBN) has linked the recent instability in the foreign exchange market to seasonal demands, according to CBN Governor Olayemi Cardoso. Speaking at the 295th Monetary Policy Committee (MPC) meeting in Abuja on Tuesday, where the interest rate was increased from 24.75% to 26.25%, Cardoso emphasized the impact of seasonal factors on the forex market.
“Members further observe the recent volatility in the foreign exchange market attributing this to seasonal demand, a reflection of the interplay between demand and supply in a freely functioning market system,” Cardoso explained.
Since the beginning of President Bola Tinubu’s administration, the Nigerian Naira has experienced unprecedented volatility. The currency, which was around N700 to the US dollar in May 2023, plunged to an all-time low of approximately N1,900 in February 2024. It briefly recovered to about N1,100 in April before descending again to N1,600 in May 2024.
Despite the instability, Cardoso expressed optimism, stating, “There is light at the end of the tunnel,” and highlighted that the CBN’s current measures are beginning to provide relief.
Cardoso also mentioned a slight increase in Nigeria’s external reserve balance between March and April 2024. “The committee also noted the marginal increase in the external reserve balance and urged the balance to sustain its focus on accretion to reserve,” he said.
Foreign flows currently represent about 6% of Nigeria’s Gross Domestic Product (GDP). The CBN aims to double remittance flows within the year and has initiated processes to engage stakeholders to achieve this target.
The CBN governor assured that the bank would adopt “tighter regulation and technology” if necessary to stabilize the forex market. In March, the CBN reported over $1.5 billion in foreign exchange inflows.
Cardoso also said the MPC noted a marginal increase in the external reserve balance of the country.
“The committee also noted the marginal increase in the external reserve balance between March and April 2024 and urged the balance to sustain its focus on accretion to reserve,” he said.
He said foreign flows represent about 6% of Nigeria’s Gross domestic product (GDP) and the “our target of course is to double the remittance flow within the year, and of course, we have started that process of engaging to ensure that this happens”.
Cardoso said the CBN won’t hesitate to adopt “tighter regulation and technology” if the need arises. In March, the CBN said the economy recorded over $1.5 billion in FX inflow.
The apex bank chief further said, “The MPC commended the bank for its recent approval of 14 International Money Transfer Operators (IMTO). This is expected to improve competition and lower the cost of transactions thus attracting more remittances through formal channels.”
Cardoso said the IMTOs responded very positively on the issues of the price, the commission and the charges that they are having to pay. “They are encouraged to use the official (rate) channels to advance the course of the very laudable efforts that they are making to enhance the inflows of the foreign currencies coming in,” he said.
He added that the committee also noted that the banking system remained safe and sound despite the headwinds confronting the economy.
