Dr. Muda Yusuf, CEO of the Centre for Promotion of Private Enterprises (CPPE), has ordered the Central Bank of Nigeria (CBN) to take action to reduce the high market volatility that has accompanied official foreign exchange (FX) trading since the current model’s adoption on June 14.
The warning comes as the Investors and Exporters (I&E) window continues to see exceptionally high intra-day volatility, raising concerns about the potential for market manipulation. Wide swing has reportedly become a characteristic of the official window, according to The Guardian.
The dollar fluctuated on Friday between N461.5 and N841, which is quite unusual even in worldwide parallel currency markets.
The market began trading at N758.56 to $1 before moving to its usual, wildly unpredictable intra-session volatility. The final price was N769.25/$.
Having praised the FX rates harmonisation for its potential to bring back market stability in his half-year (H1) economic assessment, Yusuf asked the apex bank to “put in place a sustainable intervention framework to moderate the volatility in the forex market.”
The economist said in a position statement provided to The Guardian that the enormous backlog of unfulfilled requests would continue to put pressure on the exchange rate in the coming months, but that the outlook for the short to medium term is still “very good.”
Yusuf is also requesting government assistance to mitigate the social effects of market changes, particularly the elimination of the PMS subsidy, which has caused the product’s pump price to climb by more than 200 percent in some regions of the nation.
“Urgent measures need to be put in place to mitigate the soaring cost of living and the escalating operating and production costs, especially for businesses.”
“Inflationary pressures may intensify in the near term, the exchange rate may come under pressure in the short term as forex demand backlog exerts pressure on the official forex window,” he noted.
Yusuf, a steadfast supporter of pro-market reform, claims that the move “portends bright prospects for recovery and growth” and that there are also definite signs of increased investor confidence, an improvement in the government’s fiscal flexibility, and better chances of exchange rate stability.
He stated that the FX reform will “pave the way for an equilibrium exchange rate which would be more tolerable and sustainable.”
“With a better fiscal space, the outlook for lower fiscal deficit, moderation in public debt growth, debt service burden reduction, and an improvement in macroeconomic stability are very positive,” he said, adding that the economy could grow faster in the second half (H2) of the year.
But in order to lessen the existing hardships brought on by the reforms, President Bola Tinubu’s administration would have to move quickly.
He suggested a combination of direct interventions, tax incentives for low-income workers and small enterprises, reductions in import tariffs on some essential intermediate products, and exemptions from import charges for the electricity, energy, transportation, and health sectors.
“The improved fiscal space created by the reforms should make these mitigating measures feasible and they have to be implemented urgently to give the current reforms a human face,” the CPPE boss concluded.
