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.
The bank’s deputy governor, economic policy, Mr Muhammad Abdullahi, added that the measures it had taken to make the Nigerian foreign exchange market more efficient have started to moderate the pressure in the foreign exchange market, with the massive reduction in the premium between the official rate and that at the Bureau De Change (BDC) segment.
Mr Abdullahi stated this in Abuja on Wednesday, while declaring open the 2023 Economic Policy Directorate Retreat of the apex bank with the theme: “Foreign Exchange Market Reforms and Price Stability in Nigeria”.
According to a statement that was issued by the bank, He noted that the premium between the BDC and the official rate had 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.
Abdullahi enumerated the steps taken by the Bank, 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 also recalled that the Bank 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.
To mitigate the challenges experienced in stabilising the foreign exchange market, he said 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 said other measures taken include the removal of the allowable limit of the exchange rate quoted by IMTOs to further 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 declared.
Earlier in her welcome address, the Director of the Research Department, Ms. Aderinola Shonekan, 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.
