In an effort to lessen pressure on the local currency, the Central Bank of Nigeria (CBN) has disclosed plans to introduce new foreign exchange (FX) restrictions. A persistent rise in the need for foreign exchange has caused the value of the Nigerian naira to decline.
There has been an upward trend in demand for the US dollar, but there has been a lack of supply, leading to an imbalance in the foreign currency markets. Due to this, the government, businesses, and people have all seen negative exchange rate movements.
New foreign exchange regulations and laws would be created, according to Central Bank Governor Yemi Cardoso, who made this announcement during the Annual Bankers Dinner.
Mr. Cardoso explained that extensive consultations will be conducted with banks and FX market operators before implementing any new requirements.
“We have already witnessed improvements in FX market liquidity in recent weeks, as the market responded positively to tranche payments which have been made to 31 banks to clear the backlog of FX forward obligations”, he said.
According to him, CBN has been subjecting these payments to detailed verification to ensure only valid transactions are honoured. “In a properly functioning market, it is reasonable to expect significant FX liquidity, with daily trade potentially exceeding $1.0 billion.
“We envision that, with discipline and focused commitment, foreign exchange reserves can be rebuilt to comparable levels with similar economies”, Cardoso said.
He said monetary policies will aim to achieve price stability, foster sustainable economic growth, stabilize the exchange rate of the naira, and reduce interest rates to facilitate borrowing and investments in the real sector.
CBN Governor emphasized that in order to ensure the proper functioning of domestic and foreign currency markets, clear, transparent, and harmonized rules governing market operations are essential. The persistent depreciation of the naira poses a significant risk for domestic banks with foreign exchange exposures, he said.
“A thorough assessment of the economy reveals significant challenges, including high and rising inflation, inadequate foreign exchange supply, depreciation of the exchange rate, limited external reserves, weakened output, and high unemployment.
“These challenges have led to increased interest rates, discouraging investments in productive activities. Within the banking system, high inflation has affected asset quality and solvency ratios.
“The persistent depreciation of the naira poses a significant risk for domestic banks with foreign exchange exposures”, Cardoso said.