Can Nigeria sustain FX stability?

Nigeria's foreign exchange market has been experiencing some notable developments in recent times, with the Central Bank of Nigeria implementing key policies aimed at addressing challenges such as foreign exchange volatility and inflation. Kingsley Nwaiwu, the Head of Consumer Sector Sales at Stanbic IBTC, provided valuable insights in a recent interview on CNBC Africa. One of the key areas of focus has been the tightening of monetary policy, with a total of 600 basis points move observed between the last Monetary Policy Committee (MPC) meeting and the current one. This tightening has contributed to a relative stability in the exchange rate, leading to a gradual strengthening of the Naira. The recent appreciation of the Naira can be attributed to changes in the methodology used to calculate the Naira Exchange Rate (NAFX), with the rate currently hovering around 1.14 to 1.15 against the US dollar. The unification of the foreign exchange market and the removal of caps on International Money Transfer Operators (IMTOs) have also played a significant role in attracting foreign portfolio investors to the market. This influx of foreign capital has bolstered the Naira and provided a liquidity boost to the system. Additionally, the Central Bank of Nigeria has resumed dollar sales to Bureau De Change (BDCs), albeit with reduced allocations and specific guidelines to streamline operations and ensure transparency. One of the key challenges in the foreign exchange market has been the issue of rejected FX claims, particularly in the retail secondary market intervention sales. The Central Bank of Nigeria has taken steps to address these issues, including clearing valid transactions and conducting forensic audits to investigate non-valid claims. While the process is ongoing, it highlights the importance of maintaining transparency and accountability in the foreign exchange market. Looking ahead, there is optimism that the current trends in the foreign exchange market will lead to further appreciation of the Naira and increased stability. The forecast suggests that the Naira could settle between 1,000 to 1,002 against the US dollar by the end of the first half of the year. With continued policy interventions and investor confidence, Nigeria's foreign exchange market is poised for a period of sustained stability and growth.