A recently released document by the Central Bank of Nigeria (CBN) has shown that four members of the Monetary Policy Committee raised concerns about the stability of the naira in the foreign exchange market at the July meeting just before the CBN banned sale of forex to Bureau de Change (BDC) vendors. The members, Aishah Ahmad, Robert Asogwa, Mike Obadan and Kingsley Obiorah, raised concerns that the instability of the naira in the forex market increased inflation and made it hard to control and called for the “sanitisation” of the market. Ahmad, who is a Deputy Governor of CBN, said that the ban on the BDCs would ensure stability and transparency in the market. She also said that the apex bank had to make sure that the legitimate needs for forex were met. “With the Committee’s decision to discontinue weekly FX sales to Bureau de Change operators, more stability and transparency is expected in the FX market,” she said.
“The Bank is thus advised to sustain the implementation of policy measures aimed at legitimate demands for FX are met.” Asogwa, who is a macroeconomist at the African Development Bank Group, agreed that there was a dollar supply problem and said that the depreciation of the naira at the NAFEX window was due to the rising dollar demand in the parallel market windows claiming that illegal hoarders were to blame for the latter trend. “Since the last MPC meeting, the naira exchange rate at the I&E window has somewhat been stable, only depreciating marginally by 0.02 per cent from N410.00/USD at end-May 2021 to N410.10/USD at end-June 2021.
This is mainly attributable to rising dollar demand from both genuine commodity importers and illegal hoarders using the BDC and parallel market windows, thus often outweighing the supply of dollars,” he said. “We however expect the naira to remain under pressure in the medium term as genuine merchandise importers ramp up their foreign currency demand as more trading partners globally reopen their economies for business. This may also not affect the domestic currency stability given the increasing level of foreign reserves and the likely ban of BDCs from unjustified dollar demand.” Mike Obadan who is the former Director-General of the National Centre for Economic Management and Administration and a Professor of Economics noted that most countries’ currencies depreciated in value against the US dollar which reflected policy adjustments.
Then he went on to posit that a control of inflation measures included among others would ensure a stable exchange rate. He also asked the CBN to “closely monitor” the forex market and activities of all the stakeholders involved. He said, “As of now, the expected impact of the development finance interventions on inflation is being undermined by insecurity in the food producing communities in the country. Thus, a major resolution of the food inflation challenge is an effective handle on insecurity. The Government should double its efforts in this regard. “It is also crucial to implement other inflation control measures – ensure exchange rate stability, avoid sharp increases in energy prices, improve business environment for farmers, manufacturers, MSMEs by addressing legacy infrastructure problems, especially transport and electricity, and eliminating multiple taxation of products (farm produce) and transports conveying them, make InfraCo functional to take a big burden off Government in the area of infrastructure development, closely monitor the activities of all economic agents dealing in the foreign exchange market to prevent foreign exchange racketeering and the associated inflationary implications.”