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CBN’s Forex Policy Adjustment Not Sustainable –Experts

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Naira Appreciates as Manufacturers Lament Forex Scarcity
  • CBN’s Forex Policy Adjustment Not Sustainable

Economic and financial experts say it is uncertain that the latest policy action on foreign exchange introduced by the Central Bank of Nigeria will work.

The CBN had on Monday announced a new policy decision aimed at boosting forex supply to end-users in order to ease the pressure at the parallel market.

Economists said the policy measure might not address the underlying problems affecting the forex market and the economy in general.

The experts spoke in separate interviews with our correspondent on Wednesday.

The Chief Executive Officer, Cowry Assets Management Limited, Mr. Johnson Chukwu, said, “The CBN’s new forex action is not a new policy per se; it is an extension of the existing policy. The CBN is trying to improve forex supply in the official market to end-users in order to reduce pressure at the parallel market.

“This will in turn narrow the gap between the official and parallel market rates. It is good but I doubt if they can sustain it. We are not also sure if this will address the underlying challenges.”

A professor of Economics at the Olabisi Onabanjo University, Sheriffdeen Tella, opposed the policy action, saying it would drain the country’s external reserves and worsen the exchange rate challenges facing the country.

He said, “It is unfortunate that the CBN has allowed itself to be forced into this type of decision. This decision is not a palliative measure because it will create serious problem for the CBN. This measure will drain again the external reserves that have been growing in recent times. Some Nigerians including the banks will use this opportunity to collect the dollars from the CBN and sell it at the black market.

“Again, looters will use the naira they have been keeping at home to buy more dollars. I have said it in November last year that the CBN needs to change higher denominations (N1000 and N500 notes) of the naira and give only six weeks for people to bring the money they have to change it.”

A market research expert at FXTM, a forex brokerage firm, Mr. Lukman Otunuga, said, “The naira was exposed to further losses on Tuesday with prices sinking to 520/dollar on the parallel exchange as investor’s re-evaluated the new CBN forex policy.

He said, “With the dollar demand for school fee payments overseas and personal travel allowance enforcing downside pressures on the parallel market, the move by the CBN to sell dollars to retail users via commercial lenders seems logical. While the policy may create some transparency, liquidity and efficiency in the Nigerian FX markets, this does not solve the overriding problem of multiple exchanges.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Naira

Nigeria Hits Historic High as Currency in Circulation Surges to N3.69 Trillion

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Nigeria’s currency in circulation surged to a historic high of N3.69 trillion, according to data released by the Central Bank of Nigeria (CBN).

This figure represents an increase of N43.07 billion or 1.18 percent from the total of N3.65 trillion reported in January 2024 and a 13.64 percent year-on-year rise from N3.25 trillion reported in February 2023.

Currency in circulation encompasses the physical cash, including paper notes and coins, actively used in transactions between consumers and businesses within the country.

The latest statistics indicate a considerable uptick in the availability of cash within the Nigerian economy.

The surge in currency supply comes amidst lingering concerns over a potential cash crunch following the monetary policy adjustments by the CBN, particularly the aggressive tightening stance of the Monetary Policy Committee (MPC).

Analysts attribute this spike to various factors, including the fear factor stemming from the cash crunch experienced in 2023 and lingering uncertainties surrounding the administration of physical currency.

Despite the surge in currency in circulation, Nigeria’s economic growth remains sluggish, with projections indicating growth rates of around 2.9 percent to 3.1 percent for 2024.

Also, inflation remains a significant concern, with the headline inflation rate climbing to 31.70 percent in February 2024 from 29.9 percent reported in January 2024, according to data from the National Bureau of Statistics (NBS).

The CBN’s proactive approach to monetary policy, including a historic increase in the monetary policy rate (MPR) to 24.75 percent, underscores the central bank’s commitment to addressing economic challenges and fostering stability amidst persistent pressures.

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Naira

Nigerian Naira Surges to N1,350 per Dollar in Parallel Market

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New Naira notes

The Nigerian Naira has appreciated to N1,350 per dollar in the parallel market, a significant gain from its previous rate of N1,430 per dollar just a day earlier.

Similarly, in the Nigerian Foreign Exchange Market (NAFEM), the naira strengthened to N1,382.95 per dollar, indicating an upward trend across key forex segments.

Data from FMDQ revealed that the indicative exchange rate for NAFEM fell to N1,382.95 per dollar from N1,408.04 per dollar on the previous day, representing a gain of N25.09 for the naira.

This surge in the naira’s value has widened the margin between the parallel market rate and NAFEM to N32.95 per dollar from N21.96 per dollar previously.

Analysts attribute this impressive surge to recent foreign exchange reforms implemented by the Central Bank of Nigeria (CBN).

These reforms, including the consolidation of exchange rate windows and liberalization of the FX market, have contributed to bolstering the naira’s strength against the dollar.

The CBN’s proactive measures aim to promote stability, transparency, and liquidity in the foreign exchange market, fostering confidence among investors and strengthening the national currency.

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CBN Governor Reveals $2.4 Billion Forex Forwards Under Investigation

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Naira Exchange Rates - Investors King

Governor Yemi Cardoso of the Central Bank of Nigeria (CBN) disclosed that law enforcement agencies are currently investigating foreign exchange forwards valued at $2.4 billion.

This announcement came in the wake of the Monetary Policy Committee (MPC) meeting held in Abuja on Tuesday, March 26.

Governor Cardoso shed light on the meticulous forensic audit conducted on these transactions, which uncovered numerous discrepancies, rendering them ineligible for payment.

The CBN, while settling certain tranches of FX backlog, encountered transactions riddled with issues concerning their authenticity.

To address these concerns, Deloitte management consultants were enlisted to conduct a comprehensive forensic analysis spanning several months.

The audit revealed a multitude of irregularities, including allocations disbursed without corresponding requests, lack of proper documentation, and instances of outright illegality.

Cardoso emphasized the gravity of the situation, stating, “We refused to validate them because, apart from the fact that documentation was not satisfactory in many cases, they were outright illegal.”

He underscored the commitment of law enforcement agencies to investigate these transactions thoroughly.

Despite concerns about potential backlogs among stakeholders, Cardoso assured that the market remains open and transparent for addressing any outstanding contractual obligations.

The CBN has diligently verified and settled recognized backlogs of forward transactions.

This revelation comes at a critical juncture as Nigeria grapples with economic challenges, including inflationary pressures.

The MPC’s decision to raise the benchmark interest rate to 24.75 percent reflects efforts to stabilize prices and restore the purchasing power of the average Nigerian.

As investigations unfold and regulatory scrutiny intensifies, the CBN’s commitment to transparency and financial integrity will be closely monitored by stakeholders across the nation.

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