Central Bank Blames Seasonal Fluctuations for Currency Instability

The Central Bank of Nigeria (CBN) has identified “seasonal demands” as a key factor contributing to the recent instability observed in the foreign exchange market, according to CBN Governor, Olayemi Cardoso, speaking at the 295th Monetary Policy Committee (MPC) meeting held in Abuja.

This statement came as the MPC 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,” Cardoso stated.

The Nigerian currency has witnessed significant fluctuations over the past year, with the Naira experiencing fluctuations from around N700/1$ in May 2023 to an all-time low of about N1,900/1$ in February 2024, before climbing to approximately N1,100/$1 in April and then declining suddenly to N1,600/$1 in May 2024.

Cardoso expressed optimism about the situation, noting that “there is light at the end of the tunnel” and emphasizing that the CBN’s interventions are yielding positive results, bringing some relief to the market.

The MPC also acknowledged a slight increase in the country’s external reserve balance between March and April 2024, urging sustained efforts to bolster reserve accumulation.

Regarding foreign flows, which represent about 6% of Nigeria’s Gross Domestic Product (GDP), Cardoso highlighted the CBN’s target to double remittance flows within the year and emphasized ongoing engagements to achieve this goal.

Cardoso affirmed the CBN’s readiness to adopt tighter regulation and technology if necessary, underscoring the bank’s commitment to maintaining stability in the financial system. In March, the CBN reported over $1.5 billion in foreign exchange inflows into the economy.

Furthermore, Cardoso noted the MPC’s commendation of the CBN’s approval of 14 International Money Transfer Operators (IMTOs), aimed at enhancing competition and reducing transaction costs to attract more remittances through formal channels. He emphasized the positive response from IMTOs and encouraged them to utilize official channels to facilitate their efforts in increasing foreign currency inflows.

Despite economic headwinds, Cardoso reassured that the banking system remains safe and sound, reflecting the committee’s confidence in the sector’s resilience amidst challenges.