• Apex Bank Has Not Abandoned Unified Exchange Rate – Abubakar
• Raising MPR To Curb Inflation Will Fail, Says Emmanuel
• Secured Country, Productive Economy Will Stabilise Nation’s Currency, Economists Insist
• Naira Slides To 1,419.501
The Central Bank of Nigeria (CBN) is grappling with the task of devising effective measures to address the persistent instability of the naira within the forex market.
Despite various initiatives such as widening distribution channels to over 1,583 on April 23, 2024; periodic adjustments in import rates and restrictions on online exchange platforms, achieving the desired stability for the naira remains a daunting challenge.
On May 2, the U.S. dollar traded for N1,350.804, while the British Pound exchanged for N1,660.967, reflecting substantial fluctuations compared to previous rates. The naira volatility, exemplified by a sharp decline from N1,250 on April 26 to N1,350 on May 2, has stirred concerns among stakeholders.
As of Friday, the naira further slide slightly to N1,355.904 at the parallel market. Yesterday, dollar exchanged for N1,419.501 at the parallel market.
While the CBN is striving to bolster the value of the naira, there exists a lack of harmonisation between fiscal and monetary authorities.
CBN Governor Yemi Cardoso underscored the imperative for structural reforms during the recent Monetary Policy Committee meeting held on March 25-26, 2024. He emphasised the need for coordinated fiscal and monetary policies, coupled with structural reforms in pivotal sectors such as agriculture, electricity and energy.
However, an expert, Abubakar Umar, has attributed the market’s reaction to liquidity constraints and mounting inflation rather than a deviation from the unified exchange rate policy.
He highlighted corruption as a significant factor contributing to the naira instability, emphasising the need for stringent measures to combat malpractices within the forex market.
Another expert, Kelvin Emmanuel, echoed concerns about the efficacy of current interventions, citing the inadequacy of selling dollars to Bureau De Change at lower rates to drive market sentiments positively.He emphasised the necessity of increasing forex supply through various mechanisms, cautioning against solely relying on MPR hikes to combat inflation.
Meanwhile, economists advocate for a consolidated effort between fiscal and monetary authorities to achieve enduring economic stability. They underscore the urgency of diversifying the economy, prioritising non-oil exports and fostering a conducive environment for long-term investments and sustainable growth.
According to them, addressing underlying structural issues, enhancing security and promoting a robust economy are crucial to stabilising the naira and ensuring economic resilience.
A Professor of Economics at the University of Uyo, Akwa Ibom State, Akpan Ekpo Akpan, said the government should begin to encourage manufacturers of non-oil goods to produce for exports.
“We need a long-term approach and solutions. The government must encourage production for exports. Let us not depend on oil exports only. Even the crude oil that brings enormous dollars into the country is challenged by oil theft. Those in charge of protecting the crude are the ones stealing it in connivance with their foreign collaborators. Nigerians should not be deceived into believing that those responsible for oil theft are the miscreants we see on television. I believe that the actual culprits are in big cities not only in Nigeria but abroad. These are powerful people. When the government is ready to end oil theft in the Niger Delta, it will end it. I agree that the fight will be dirty and long drawn but it is a fight Nigeria must fight successfully at some point unless we are not interested in increasing our crude production,” he explained.
He stressed that the CBN has been using the wrong instruments in its efforts to ensure the stability of the naira, adding: “It has increased the MPR thinking that our inflation is demand-driven. That may not be the truth. Our inflation is cost-push and supply-pull.
“In the short term, the apex bank has pumped a lot of dollars into the market. It has also increased Treasury Bills so that people can bring in dollars for some days. These are portfolio investments. This is money that does not stay long enough in the economy. What Nigeria needs is Foreign Direct Investments which may not come in the quantum that we need them until we solve our insecurity challenges.”
He argued that insecurity is one of the major push factors driving inflation as shown by the NBS, which put food inflation at 32.92 per cent as of February 2024 from 24.57 per cent it was in February 2023, representing a 13.57 per cent year-on-year increase.
He noted: “There is no doubt that insecurity across the country has further pushed inflation to high heavens. We can see that farmers find it difficult to go to farms to cultivate and harvest crops to feed the populace and service our local industries. All these are responsible for the increase in inflation figures.”
Akpan urged the Federal Government to engage other countries outside of its traditional allies such as the United States of America and Britain for bilateral and multi-lateral trade partnerships.
He said: “Of course, it is true that Nigeria has been too much tied to her colonial masters. It is time we mix our trading partners apart from Britain and America; we should now consider trading with other countries such as Venezuela, Netherlands, India, China, Indonesia, Malaysia and Singapore, among others. Dealing with these countries will promote equal trading terms.”
On his part, Prof. Sheriffdeen Tella of Olabisi Onabanjo University, Ago-Iwoye, stressed that production with a high local content component must be encouraged through medium-term government support.
Tella explained that an increase in production will not only reduce inflation to a maximal level but will also help increase the nation’s foreign exchange especially.
He explained: “For a developing economy like Nigeria, the management of the forex market is very important. The market normally suffers from two major activities namely speculative attacks and the importation of industrial raw materials for food processing and medical items. The latter can be controlled but the speculative activities require continuous vigilance on the part of the monetary authorities. Instability in exchange rate does cause price instability of bigger magnitude which necessitates the need for government’s interventions in the market regularly to moderate domestic prices.”