Naira: CBN to Develop New Foreign Exchange Guideline –Cardoso
The Central Bank of Nigeria (CBN) has revealed a plan to launch new foreign exchange (FX) guidelines to curb pressures on the local currency. A sustained increase in demand for foreign currency has reduced the value of the Nigerian naira.
While demand for the US dollar has maintained an uptrend, the supply side has been limited, creating disequilibrium in the foreign exchange markets. This has kept exchange rates movement negative for companies, individuals and government.
Speaking at the Annual Bankers Dinner, the Governor of the Central Bank, Yemi Cardoso said new foreign exchange guidelines and legislation will be developed.
Mr. Cardoso explained that extensive consultations will be conducted with banks and FX market operators before implementing any new requirements.
“We have already witnessed improvements in FX market liquidity in recent weeks, as the market responded positively to tranche payments which have been made to 31 banks to clear the backlog of FX forward obligations”, he said.
According to him, CBN has been subjecting these payments to detailed verification to ensure only valid transactions are honoured.
“In a properly functioning market, it is reasonable to expect significant FX liquidity, with daily trade potentially exceeding $1.0 billion.
“We envision that, with discipline and focused commitment, foreign exchange reserves can be rebuilt to comparable levels with similar economies”, Cardoso said.
He said monetary policies will aim to achieve price stability, foster sustainable economic growth, stabilize the exchange rate of the naira, and reduce interest rates to facilitate borrowing and investments in the real sector.
CBN Governor emphasized that in order to ensure the proper functioning of domestic and foreign currency markets, clear, transparent, and harmonized rules governing market operations are essential. The persistent depreciation of the naira poses a significant risk for domestic banks with foreign exchange exposures, he said.
“A thorough assessment of the economy reveals significant challenges, including high and rising inflation, inadequate foreign exchange supply, depreciation of the exchange rate, limited external reserves, weakened output, and high unemployment.
“These challenges have led to increased interest rates, discouraging investments in productive activities. Within the banking system, high inflation has affected asset quality and solvency ratios.
“The persistent depreciation of the naira poses a significant risk for domestic banks with foreign exchange exposures”, Cardoso said. Nigeria Eurobond Slumps after CBN Resumes OMO Auction
