The Centre for the Promotion of Private Enterprise (CPPE), one of Nigeria’s advocacy groups championing the cause of the organized private sector (OPS), has projected that despite the current concerns about the nation’s foreign exchange market volatility, there are strong indications that the volatility will abate as the government continues to respond to the FX market’s whirlwinds with proactive policies in the months ahead.
The Director/Chief Executive Officer of the group, Dr. Muda Yusuf, in a statement issued late Sunday, noted that though the volatility in the foreign exchange market had naturally been unsettling, but that it was not unexpected given the long period of distortions in the foreign exchange market.
According to him, correcting the entrenched distortions will take some time but the monetary authorities should come up with a sustainable intervention framework to ensure the moderation of current volatility in the forex market.
Muda, who confirmed that the Centre recognized the forex supply limitations, stated that the system needed to be managed in way that would not undermine investors’ confidence as erosion of confidence in any economy usually triggers speculation and influences expectations which in turn trigger diverse responses among economic players.
The economist noted that the FX market was evidently under pressure as a result of a number of factors, including the unprecedented surge in monetary expansion with money supply growing by an unprecedented 15% between May and June 2023 just as broad money grew by over N9 trillion, from N55.7 trillion to N64.9 trillion.
The CPPE’s boss, therefore, charged the monetary authorities to investigate the drastic growth in money supply and take steps to curb subsequent expansion in view of the significant risks to the nation’s macroeconomic stability, especially price stability.
Other factors he identified as responsible for the FX market volatility over the past months are a cumulative backlog of unmet foreign exchange demand, transition from a repressive market environment to a more liberalized market could be a source of market instability, reduction in the frequency and scope of CBN intervention in the forex market, and the marginal decline in foreign reserves, among others.
To forestall abuses of the FX regime, Muda advised the monetary authorities to be more vigilant to prevent questionable capital outflows or speculative assault on the currency as a free market is not synonymous with complete absence of regulation.
He further clarified: “The CPPE believed that the Tinubu administration is on the right path and that the current volatility in the foreign exchange market are challenges typically inherent in a major policy transition. In a couple of months , we expect the instability to subside.
“On the supply side, the trajectory is that there would be an improvement in oil output which would boost forex earnings.
“The prospects of improved domestic refining of petroleum products in the coming months will reduce forex demand pressure from importation of petroleum products.
“Improved investors’ confidence will boost Foreign Direct Investment [FDI] and foreign portfolio investments, and other remittances.
“CBN should exercise better oversight on forex demands to ensure protection of the market from speculative assault and illicit capital outflows”, the economist added.
