* Olayemi Cardoso
By Funso Alarape
Saturday July 13, 2024
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Governor, of the Central Bank of Nigeria, CBN, Mr. Olayemi Cardoso on Thursday said that the future of the country’s economy is bright citing the positive impact of recent reforms in the foreign exchange market and interest rate hikes including improved investors’ confidence, stability of the Naira and reduction in excess liquidity in the economy.
Speaking in Lagos on Thursday during a fireside chat at the BusinessDay CEOs forum, Cardoso said that the recent interest rate hikes of the CBN were necessary to stabilize the naira and address the rise in money supply exacerbated by the N23 trillion Ways and Means, and N10 trillion intervention funds.
He however assured that interest rates will soon come down once the rising trend in inflation moderates.
Cardoso said: “The Monetary Policy Committee, MPC is not oblivious to the fact that ultimately we do want the economy to grow.
“The country does need growth. If these hikes were not done at the time they were done. If you recall, the naira to the dollar was almost tipping over. This helps to stabilize it. That’s number one.
“Number two, very importantly, is that it’s a timing issue. This is not something that I expect would remain with us forever.
Fiscal issues are being moderated, and the ability to soak up all the excess liquidity that we have in the system and be able to balance things out over some time. That’s the important thing for the MPC. I believe that for example, I can tell you that between February and May of this year, the month-on-month, MoM rate of inflation, has gone down 50%.
“As I said, this is not something that is one size fits all that I can expect, to continue like this. To the extent that the right policies are used, and obviously, with the results we’ve seen the right policies are being used. I believe that in the not too distant future, things will begin to modulate, and interest rates will come down.”
Naira stability
Cardoso also assured that the naira will, going forward, experience more stability given the elimination of distortions and stakeholders’ confidence in the new forex market regime.
He said: “When we came into the saddle of leadership at the Central Bank, we looked at the system and found that there was an awful lot of distortion within the system. For example, illicit flows, people not abiding by the rules.
“So we believe that quite a portion of volatility, the wild swings in the exchange rate was due to these malpractices.
We believe that with time, stakeholders are becoming a lot more comfortable with the way the market is being run now. There is no need to, for example, front load your forex request, you don’t need it. A lot of that is beginning to settle.
“Even with portfolio investors, we found that a good number of them came in, left, and then came in again because they were pretty comfortable that there was a plan and that the plan was headed in a direction that they could see, understand, and trust. To my mind, a lot of them, you know, wild swings that we saw, are gradually beginning to smoothen out as a result of a better understanding of the market, the greater transparency that is taking place, and the comfort that those who are using the market see in it.”
Recapitalisation & Retain earnings
Stressing that the banking recapitalization exercises aim to build a better stronger and more resilient banking system, Cardoso said that the exclusion of retained earnings from the computation of minimum capital requirements of banks was to ensure a fair standard of comparability.
He said: “What we are looking to do is build a better and stronger and more resilient banking system. And that is not something we want you to do overnight. You see, it’s important to note that the contribution that the banking system has towards our GDP is relatively modest in comparison to our peers. This we believe is a means of hopefully beginning to address that issue. Indeed, it will open the banks up to different kinds of wanting to provide different kinds of services to the populace as opposed to aggregating them in one particular area.
“Concerning retained earnings, quite frankly, as far as we’re concerned, it helps to build comparability because with other items, with retained earnings, easily, accounting rules allow you to calculate certain things and others take some certain things out from depreciation to amortization to a host of things. So we feel that something that is easily determinable outside of retained earnings does help for comparability. I think that is very important. And frankly, for us, we have absolutely no doubt in our minds that we must move to a more transparent system within the banking industry, and this will contribute in no small way.”
CBN reopens Forex Tap, sells $122.67m to 46 Authorised BDCs
Meanwhile, the CBN has resumed sales of foreign exchange to Bureau De Change (BDC) operators, ending a four-month suspension.
On Friday, July 12, 2024, the apex bank sold $122.67 million to 46 authorized dealers, aiming to promote stability and reduce market volatility in the foreign exchange market.
According to a statement signed by Dr. Omolara Duke, Director of Financial Markets at CBN, “The Central Bank of Nigeria has sold the sum of $122,671,000 to 46 authorized dealers in its determination to promote stability and reduce market volatility in the foreign exchange market.”
This development comes after the President of the Association of Bureau De Change Operators of Nigeria, Aminu Gwadebe, revealed last month that the CBN had suspended supply to BDCs since March, paving the way for a complete liberalization of the foreign currency market.
Gwadebe stated, “The BDC window has been suspended by the Central Bank of Nigeria since around March or so. The last time we were funded, I think was around March.”
The hiatus in forex sales led to a further depreciation of the naira, which fell to N1554/$ at the official market on Thursday.
However, Nigeria’s external reserves have continued to grow, reaching $35.05 billion as of July 8, 2024, a first under the administration of President Bola Tinubu.
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