The Central Bank of Nigeria (CBN) on Friday said increasing demand for dollars and Nigerians’ insatiable appetite for foreign goods are responsible for free fall of naira.
The CBN governor, Olayemi Cardoso, said the apex bank had no magic wand to get naira stabilised quickly unless Nigerians reduce their demand for dollar and use of foreign goods.
Cardoso spoke at an interactive session with the Senate Committees on Finance, Appropriations and Banking, Insurance and other Financial Institutions, alongside the Minister of Finance and Coordinating Minister for the Economy, Olawale Edun, the Minister of Budget and National Planning, Atiku Bagudu and the Minister of Agriculture, Abubakar Kyari.
He, however, informed members of the committees that series of measures put in place by the apex bank recently were yielding results with inflow of about $1billion into the economy.
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He said: “The Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira. Factors contributing to this situation include speculative forex demand, inadequate forex supply, increased capital outflows, and excess liquidity.
“The shift to a market-driven exchange rate was intended to create a stable macroeconomic environment and discourage currency hoarding. However, short-term volatilities are attributed to arbitrage and speculation.
“To address exchange rate volatility, a comprehensive strategy has been initiated to enhance liquidity in the FX markets. This includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs and IMTOs, enforcing the Net Open Position limit, Open Market Operations and adjusting the remunerable Standing Deposit Facility cap, among others.
“These measures, aimed at ensuring a more market-oriented mechanism for exchange rate determination, will boost foreign exchange inflows, stabilize the exchange rate, and minimize its pass-through to domestic inflation.
“Indeed, they have already started yielding early results with significant interest from Foreign Portfolio Investors (FPIs) that have already begun to supply the much-needed foreign exchange to the economy. For example, upwards of $1 billion in the last few day came in to subscribe to the Nigeria Treasury Bill auction of 1 trillion Naira which saw an oversubscription earlier this week.
“Our measures aimed at improving USD supply into the Nigerian economy have significant potential in taming the volatility of the exchange rates. However, for these measures to be sustainable, we must as a country, moderate our demand for FX.
“We must understand that the genuine issue impacting the exchange rate is the simultaneous decrease in the supply of, and increase in the demand for, US Dollars. It is also clear that the task of stabilizing the exchange rate, while an official mandate of the CBN, would necessitate efforts beyond the bank itself. It will also include actions by corporates and individuals to reduce our frequent demand for the dollar for business and personal needs.”
