CBN Remains Hopeful About FX Market Reforms

CBN Remains Hopeful About FX Market Reforms....KINDLY READ THE FULL STORY HERE▶

• Predicts Naira Stabilization at N1,500/$

Comercio Partners Limited, an investment banking firm, has issued a caution against additional interest rate hikes by the Central Bank of Nigeria (CBN), stating that such actions would not be beneficial for the economy…..READ MORE

Expressing this concern during the media launch of the Comercio Partners Macroeconomic Outlook for 2024, themed “Finding Rain in Drought,” Dr. Ifeanyi Ubah, Head of Research, emphasized the importance of ensuring that the existing high interest rates yield positive impacts through appropriate transition mechanisms.

Dr. Ubah remarked, “I believe the interest rate (Monetary Policy Rate, MPR) is already elevated, and our focus should be on ensuring that the transition mechanisms are effective so that we can observe the effects of the already high interest rate.”

He continued by highlighting the unique relationship between interest rates and inflation in Nigeria, noting a positive correlation between the two variables rather than the negative correlation observed in other countries.

Dr. Ubah explained, “According to the data, increasing the interest rate could have adverse effects on the economy, leading to increased hardship and misery, particularly considering that our inflation is not primarily driven by credit. If inflation were credit-driven, the impact would be direct. However, our inflation is predominantly influenced by supply shocks and imported inflation.”

Regarding the outlook for the foreign exchange market, Dr. Ubah shared insights, stating, “Based on observations from both the CBN and the parallel market, we anticipate that the Naira may stabilize around the N1,500/$ region in the coming months. This projection is supported by increased participation in the NAFEM window, which now reflects market sentiment more accurately. After closely monitoring bid rates, market closures, and overall market performance in the NAFEM window, we find that it closely aligns with market expectations, including the black market rate.”

Dr. Ubah concluded, “These liberalization measures are expected to keep the Naira fluctuating between N1,500/$ and N1,600/$ for the next six months, barring any unforeseen circumstances.”