The Independent Media and Policy Initiative (IMPI) has described the rate with which the naira is appreciating as a reflection of the bouquet of positive policies introduced by the Nigerian authorities and the Central Bank of Nigeria (CBN).
In a statement signed by its Chairman, Niyi Akinsiju, in Abuja, the policy think tank argued that the government and the CBN deserve commendation for policies that address the supply and demand sides of the foreign exchange market.
It said: “To properly put this in perspective, we need to, as a matter of fact, from the outset, commend the dexterity of the CBN Governor, Olayemi Cardoso, in conceiving policies and deploying them to time and target as he virtually willed into existence a new monetary policy and exchange rate ecosystem by using policy actions to address both the supply and demand sides of the domestic foreign exchange market.
“One of the profound policies introduced to the market on 31st January, in the graduated steps to take charge of the market, was the administrative admonition to Nigeria’s Deposit Money Banks (DMB) to bring their Net Open Position (NOP) to prudential limit by 1st January, 2024. That was just less than a 24-hour notice to the banks.
“CBN’s NOP mandate to the banks implies that no bank holds 20 per cent long position that is, hold more foreign currency assets than liabilities by more than 20 per cent.
“The strategic objective of this mandate was to get the banks to start offloading into the open market, about $7billion they kept in long currency positions. That was a maneuver to address forex supply side concerns.
“On the same day, 31st January, when the CBN relayed the important NOP to banks, the apex financial sector regulatory body also issued the new International Money Transfer Organisations (IMTO) rules for remittances in Nigeria – the rules, which are actually a bouquet of auxiliary policies, are generally understood to mean occasions of recurring person-to-person (P2P) payments of relatively low value from persons living abroad to persons in their home country which now account for a sizeable portion of Nigeria’s foreign exchange in-flow”
The policy think tank also outlined the effect of the clearing of forex backlog on the naira.
“Perhaps, more instrumental to the resurgence of the Naira in the forex market is the clearing of the more than $7billion forex backlogs in form of outstanding CBN commitment on swap deals and due returns to foreign investors who needed to recover forex they imported into the country or those desiring to convert monies earned in local currency in the course of their businesses to forex.
“The inability of the CBN to fund the forex needs of these different economic agents constituted an albatross of sorts on the national economy and was one of the major reasons foreign investors stayed away from the country,” it said, adding that with the clearing of the forex backlog, the national economy is on the threshold of capacity optimization.
“The latest in this regard is the sale of dollar to BDCs at the rate of N1,251/$, an indication of the effective rate in the forex market, and for us, it signposts the possibility of increased value of the naira over the next few months,” it said.
To arrive at its position, the policy group did a comparative analysis of recent monetary policy activities between Nigerian authorities and their Egyptian counterparts.
IMPI is of the view that the fiscal and monetary policy authorities in Nigeria have found a way of setting the economy on a path of resilience.
