FOREX: Tinubu directs CBN to halt naira free fall
President Bola Tinubu has given a marching order to the Central Bank of Nigeria to stabilise the naira.
This is even as the acting governor of the CBN, Folashodun Shonubi, said the current exchange rate of the naira to dollar is not reflective of actual economic realities, but speculative demand from the parallel market.
He said the CBN is set to take new measures to stabilise the naira against the dollar.
Sonubi disclosed these to State House Correspondents after briefing President Bola Tinubu on what the bank was doing to halt the slide on Monday at the State House.
He said President Tinubu expressed his concern about the impact of recent developments in the foreign exchange market, particularly on ordinary citizens.
Sonubi said he assured the President that the CBN is actively working to improve liquidity and stability in the market, including addressing issues in the parallel market.
Sonubi stressed that the fluctuations in the parallel market are not solely driven by economic factors, but also by speculative demand.
The apex bank governor said while he would not disclose specific details, he warned speculators that the CBN’s upcoming initiatives could potentially lead to significant losses for them.
He said the primary purpose of his presence at the presidential villa was to reassure the President that the CBN is taking decisive action to address the concerns raised.
He expressed confidence that the measures being implemented would yield positive outcomes within a few days.
According to him, the CBN’s ultimate goal is to create an efficient and reasonable operating environment that minimises the negative impacts on the life of an average Nigerian.
He assured that the CBN remains committed to ensuring stability and improving the overall economic landscape.
He said: “Mr. President is very concerned about some of the goings on in the foreign exchange market. One of the things we discussed is what could be done to stabilise and what could be done to improve the liquidity in the market and also the goings on in the various other markets, including the parallel market.
“He’s concerned about its impact on the average person, since, unfortunately, a lot of activities that we do, which are purely local, are still referenced to exchange rates in the parallel market.
“We’ve discussed and I’ve shared with him what we’re doing to improve supply. If you look at the official market, you’ll find that that market has been fairly stable and the spreads of the difference have not fluctuated as much.
“We do not believe that the changes going on in the parallel market are driven by pure economic demand and supply, but are touched by speculative demand from people.
“Some of the plans and strategies, which I’m not at liberty to share with you, means sooner rather than later, the speculators should be careful because we believe the things we’re doing, when they come to fruition, may result in significant losses to them.
“But my presence here is more about the concerns the President has and his needs to know that we are doing something about it, assurances of which I have given him totally.
“So I hope this helps. We are looking at it and we’re doing things that will significantly impact the market in a few days’ time and we will all see it.
“The intention is to ensure the environment operates at a level that’s more efficient, but also that is also very reasonable and does not have a negative impact to the best that we can on the lives of the average person.”
Meanwhile, the pressure on the naira in the parallel segment of the foreign exchange market cooled on Monday as the CBN announced plans to boost dollar supply in coming weeks.
Some dealers said that the availability of dollars in banks, due to increased supply by the CBN has helped more lenders accommodate genuine FX demands that would have found their way into the unofficial/parallel market.
“It has not increased so much between last Friday and this morning. I feel the banks are getting more dollars from the CBN to meet genuine demands. Those demands that found their way into the parallel market have reduced because more banks have dollars to meet customers’ demands. It is a willing buyer and willing seller market. Dollar is still cheaper in the I&E window,” an FX dealer said.
The dollar has remained flat at the parallel market since Friday, closing at N945/$ on Monday, according to data by AbokiFX, an online platform that tracks the exchange rate on the parallel market.
“I would not necessarily say there is stability in the parallel market yet, even so the demand/supply dynamics has pushed the exchange rate beyond my expectation of upper N800 levels,” a former economist and head of investor relations at United Bank for Africa Plc, Abiola Rasaq said.
“That said, we are at the tail end of the seasonal FX demand cycle and any positive news of FX inflow or improvement in autonomous FX supplies should begin to strengthen the naira and moderate the speculative pressures,” Rasaq said.
Last week, the naira appreciated by 0.33 percent week-on-week at the Investors & Exporters (I&E) window to close at N740.6/$, from its previous close of N743.1/$.
At the parallel market, it depreciated week-on-week as the market saw offer quotes in the range of N885/$- N940/$.
Activities in the I&E window had weakened as average FX turnover fell last week by 14.2 percent to settle at $78.1 million. Nigeria’s external reserves fell by 0.14 percent to settle at $33.1 billion.
“Yes, news of FX inflows is helpful and such news would continue to help strengthen the fundamentals of the naira, especially as the CBN audited accounts send negative sentiments to the market about the veracity or reality of the reported foreign reserves,” Rasaq added.
He said more importantly, “the government needs to follow through, and indeed, very quickly with relevant reforms that can potentially shift the FX demand/supply balance.”
He added that, “The liberalisation of the market is great and I believe the government does not only mean well with this tough decision but also made the right call.
“Albeit the liberalisation of the FX market on its own does not solve the problem, and this is why it is important for the executive cabinet to be formed as soon as possible and the ministers have lots of work to do in sponsoring key reforms across several sectors in a coordinated manner that can spur local productivity and economic progress, capable of not only improving the local aggregate demand and supplies dynamics but also shift the balance of trade as well as current account balances. It is equally important to get on board a substantive CBN governor as soon as possible and ensure effective coordination and collaboration of monetary and fiscal reforms/policies.”
Meanwhile, the National Bureau of Statistics has revealed that as the pump price of Premium Motor Spirit rose, the average cost of bus transportation within Nigerian cities increased from N649.59 in May 2023 to N1, 285.41 in June 2023.
The pricing means that the cost of intra-city bus transportation rose by 98 per cent or N636 in one month.
These figures were from the Transport Fare Watch report of the NBS for June 2023.
The report included the breakdown of bus journeys within the cities per drop constant route; bus journey intercity (state route) charge per person amongst other means of transportation.
For a year-on-year basis, the report says bus fares rose by 120.63 per cent from N582.61 paid by commuters in June 2022.
The report read, “The average fare paid by commuters for bus journeys within the city per drop increased by 97.88 per cent from N649.59 in May 2023 to N1, 285.41 in June 2023. On a year-on-year basis, it rose by 120.63 per cent from N582.61 in June 2022.
“In another category, the average fare paid by commuters for bus journey intercity per drop rose to N5, 686.49 in June 2023, indicating an increase of 42.09 on a month-on-month basis compared to N4, 002.16 in May 2023. On a year-on-year basis, the fare rose by 55.25 per cent from N3, 662.87 in June 2022.”
