Will CBN's moves drive naira appreciation?

The Central Bank of Nigeria (CBN) has recently implemented a series of foreign exchange reforms, aggressive hikes in the Monetary Policy Rate (MPR), and adjustments to key parameters in an effort to drive naira appreciation. Analysts, including Damilola Olupona, Senior Research Analyst for Sub-Saharan Africa at Stonex, believe that these measures are expected to help the naira regain some of its lost ground. Olupona joined CNBC Africa to provide insights on the potential impact of these initiatives. One key point of discussion was whether the CBN's actions could lead to a depletion of reserves. Olupona acknowledged that while there might be short-term challenges, addressing fundamental issues is crucial for a long-lasting solution to Nigeria's FX problem. He highlighted the need to enhance FX revenue through improvements in production, incentivizing foreign direct investments (FDIs), engaging development finance institutions (DFIs) for funding, and potentially tapping the Eurobond market later in the year. By addressing these fundamental issues, Olupona believes a sustainable solution can be achieved. Another key topic of conversation was the role of speculators in impacting the naira rates. Olupona explained that speculators have taken advantage of the shortage of FX supply in the market, creating arbitrage opportunities. He suggested that by improving FX supply, the CBN can reduce the incentive for speculators to operate, ultimately stabilizing the currency. While acknowledging the progress made by the CBN, the sustainability of these efforts over time remains a critical concern. The interview concluded with a sense of cautious optimism, with a 'wait and see' approach being adopted regarding the effectiveness of the CBN's measures in stabilizing the naira. Overall, the discussion shed light on the complex dynamics at play in the Nigerian FX market and the need for comprehensive and sustained efforts to drive naira appreciation.