CPPE: Nigeria needs sustainable framework to moderate FX volatility

Nigeria is currently facing a significant challenge in the foreign exchange market, with rapid fluctuations leading to a loss of investor confidence. Muda Yusuf, Director of the Centre for the Promotion of Private Enterprise, has highlighted the urgent need for Nigeria's monetary authorities to establish a sustainable intervention framework to address the current volatility. In a recent interview with CNBC Africa, Yusuf expressed concerns about the escalating crisis and urged for proactive measures to stabilize the forex market. Yusuf emphasized the presence of a confidence crisis in Nigeria, leading to hoarding of foreign exchange by those who possess it and a surge in demand from others anticipating further scarcity. This behavior, according to Yusuf, is a clear indicator of the lack of trust in the market's stability. He stressed the importance of restoring confidence among investors to prevent further deterioration of the situation. One of the key suggestions put forth by Yusuf is the development of a framework by the central bank that can ensure a certain level of stability within a defined range supported by the country's reserves. He pointed out that the wide swings in exchange rates witnessed in recent times have already started unsettling economic players and hindering long-term investment decisions. Yusuf raised concerns about sudden and unprecedented events leading to drastic changes in the market, such as the significant jump in money supply observed between May and June. He cautioned against overlooking extraneous variables that could potentially impact the market dynamics and called for a thorough investigation into the root causes of the current crisis. While acknowledging existing supply challenges, Yusuf also highlighted the need to address speculative assaults on the currency that could further exacerbate the situation. He advocated for a vigilant approach without reverting to stringent controls, emphasizing the importance of striking a balance between market-driven mechanisms and regulatory interventions. As Nigeria braces for crucial decisions by the Monetary Policy Committee (MPC) to address the forex volatility, stakeholders are closely watching for signals of proactive measures to stabilize the market. With Yusuf's expert insights shedding light on the complexities of the current crisis, there is growing consensus on the imperative need for a coherent and sustainable framework to restore confidence and ensure stability in the forex market.