HomeBUSINESSBUSINESS UPDATESCBN Attributes Forex Volatility to Seasonal Demand, Aims to Double Foreign Inflows

CBN Attributes Forex Volatility to Seasonal Demand, Aims to Double Foreign Inflows

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By Fasuyi Tolulope

The Central Bank of Nigeria (CBN) has identified “seasonal demands” as the primary cause of the instability in the foreign exchange market. CBN Governor Olayemi Cardoso made this assertion on Tuesday during the 295th Monetary Policy Committee (MPC) meeting in Abuja, where the committee raised the interest rate from 24.75 percent to 26.25 percent.

“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,” stated Cardoso.

The Nigerian currency has faced significant volatility over the past year, particularly since President Bola Tinubu took office. In May 2023, the Naira was valued at approximately N700 to the dollar, but it plummeted to around N1,900 per dollar by February 2024. In April, it recovered to N1,100 per dollar before dropping again to N1,600 per dollar in May 2024.

Governor Cardoso emphasized that the current tools employed by the CBN are effective and signs of relief are emerging. He pointed to a slight increase in the country’s external reserves between March and April 2024 as a positive development.

“The committee also noted the marginal increase in the external reserve balance between March and April 2024 and urged continued focus on reserve accretion,” Cardoso said.

Foreign inflows currently make up about 6 percent of Nigeria’s Gross Domestic Product (GDP). Cardoso expressed the CBN’s ambition to double the remittance flow within the year, stating that efforts to engage relevant stakeholders are already underway.

Cardoso indicated that the CBN is prepared to adopt “tighter regulation and technology” if necessary. In March, the CBN reported over $1.5 billion in foreign exchange inflows. Additionally, the MPC praised the approval of 14 International Money Transfer Operators (IMTOs), which is expected to enhance competition, reduce transaction costs, and attract more remittances through formal channels.

“The IMTOs have responded very positively regarding the issues of price, commission, and charges. They are encouraged to use official channels to support the efforts to increase foreign currency inflows,” Cardoso added.

The MPC also reaffirmed that the banking system remains safe and sound despite the current economic challenges.

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