What’s driving Nigeria’s FX stability?

The Association of Bureau de Change Operators of Nigeria has attributed the stability in the exchange rate to the recall of its members into the foreign exchange market. Wonuola Akanbi, the Head of Energy and Infrastructure sales at Global Markets Stanbic IBTC, sheds light on the performance of the Nigerian Naira in the first quarter of the year in an exclusive interview with CNBC Africa. The Nigerian Naira has shown resilience in the face of economic reforms and policies set forth by the Central Bank of Nigeria (CBN). A significant drop from its peak of 1,850 in the interbank to the current levels of around 1,200 to 1,300 has been a result of various measures, including a substantial MPC rate hike of about 600 basis points to 24.75%. Additionally, the issuance of securities like OMO bills, Niger Treasury bills, and federal government bonds has amounted to approximately $8.5 trillion in debts raised year-to-date in the fiscal year 2022. The foreign exchange market has witnessed an influx of over $3 billion from offshore sources into NTBs and OMOs since January, injecting stability into the currency. The CBN has utilized a dual approach to intervention by targeting both the parallel market and the interbank, thereby maintaining a delicate balance to uphold the currency's value. This strategy has played a crucial role in curbing volatility and sustaining the Naira's position. Concerns have been raised regarding the depletion of CBN's reserves, currently standing at around $33.99 billion. Despite this, the central bank remains resolute in signaling that the Naira should stabilize around the 1-50 levels in the interbank market. The prospect of Eurobond issuances around June could potentially inject an extra $4 billion into the reserves, further bolstering the Naira and potentially driving it to rally even stronger. Speculators who sought to manipulate the market have faced setbacks as the CBN's measures continue to deter such activities. The influx of foreign investments is contingent upon sustained issuance of securities, which would keep Nigeria's yields competitive compared to countries like Egypt. The size and frequency of these issuances are critical in attracting offshore investors and sustaining market stability. The high interest rates on securities, such as Treasury bills, which are currently at 26% to 27%, reflect the ongoing battle against inflation. While these rates may seem daunting, they are a necessary step in addressing economic challenges. The key lies in finding a balance between managing rates, tackling inflation, and fostering growth through increased production and revenue on the fiscal front. A collaborative effort between monetary and fiscal policies is essential to navigate Nigeria out of its current economic predicament. The alignment of strategies to combat inflation and enhance revenue generation will be pivotal in charting a path towards sustainable economic growth and stability. In conclusion, while the Nigerian Naira has shown resilience in the face of economic headwinds, the road ahead necessitates a holistic approach that addresses both monetary policy measures and structural reforms.