The Central Bank of Nigeria (CBN) has attributed the recent volatility in the foreign exchange market to “seasonal demands.” This was stated by CBN Governor, Olayemi Cardoso, during the 295th Monetary Policy Committee (MPC) meeting held on Tuesday in Abuja.
The MPC also decided to raise the interest rate from 24.75% to 26.25%.
Governor Cardoso explained that the observed instability in the forex market is due to the natural fluctuations between demand and supply within a freely functioning market system. “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 said.
The Nigerian Naira has experienced significant instability over the past year. When President Bola Tinubu assumed office in May 2023, the Naira traded at approximately N700 to $1.
However, by February 2024, it had plummeted to an all-time low of about N1,900 to $1. In April 2024, it recovered to around N1,100 to $1, only to drop again to N1,600 to $1 in May 2024.
Cardoso reassured that despite these fluctuations, there is “light at the end of the tunnel,” noting that the CBN’s measures are beginning to yield positive results.
Cardoso highlighted a marginal increase in the country’s external reserve balance between March and April 2024. “The committee also noted the marginal increase in the external reserve balance between March and April 2024 and urged the bank to sustain its focus on accretion to reserve,” he noted.
Foreign flows currently represent about 6% of Nigeria’s Gross Domestic Product (GDP), and the CBN aims to double this figure within the year.
Cardoso emphasized the ongoing efforts to engage stakeholders and enhance remittance flows.
In March, the CBN reported over $1.5 billion in foreign exchange inflow. To further improve inflows, the CBN recently approved 14 new International Money Transfer Operators (IMTOs).
This move is expected to foster competition, reduce transaction costs, and attract more remittances through official channels.
“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.
Despite the economic challenges, the MPC noted that Nigeria’s banking system remains robust.
Cardoso reiterated the CBN’s commitment to adopting tighter regulations and leveraging technology to ensure stability and growth in the financial sector.
