In recent times, the Nigerian Naira has shown signs of strength after hitting a record low of N1,900 against the dollar in February. The currency began to appreciate gradually in March, reaching N1,230 at the parallel market by the first week of April.
The trouble for the Naira started when President Bola Tinubu, shortly after taking office on May 29, announced plans to float the currency as part of comprehensive monetary policy reforms aimed at establishing a single exchange rate for the Naira. This decision led to the adoption of a clean float foreign exchange management policy by the Central Bank of Nigeria (CBN), resulting in significant changes in the FX market operations.
The FX market liberalization policy led to the devaluation of the Naira, as the multiple exchange rate windows were abolished in favor of the Investors and Exporters (I&E) window. This move caused the Naira to plummet to over N1,000 to the dollar by December 2023, exacerbating inflation and increasing the cost of goods and services.
Stakeholders expressed concerns about the impact of floating the Naira, with some calling for the CBN to employ monetary policy tools to stabilize the currency and address inflation. The CBN responded by aggressively tightening the Monetary Policy Rate (MPR) and implementing various reforms in the FX market, leading to a gradual appreciation of the Naira.
The recent stability achieved in the foreign exchange market was attributed to the CBN’s policy actions and increased transparency. The President of the Association of Bureau De Change of Nigeria (ABCON) noted that the Naira’s value had improved due to the CBN’s monetary policy decisions and measures to stabilize the FX market.
The CBN’s sale of treasury bills and efforts to mop up excess cash liquidity aimed to strengthen the Naira and curb inflation. The clearing of a backlog of foreign exchange claims and the inclusion of Bureaux De Change in the official FX window further boosted investor confidence in the Nigerian economy.
While some stakeholders raised concerns about the high interest rates on CBN’s treasury bills, others commended the efforts to curb inflation and stabilize the exchange rate. As the Naira continues to respond positively to monetary policy measures, there is optimism that the currency will maintain its upward trajectory in the future.
Overall, the journey of the Naira reflects a complex interplay of economic policies, market dynamics, and stakeholder perspectives, shaping the currency’s path towards stability and sustainability in the global financial landscape.
