In recent months, the Nigerian Naira has shown signs of strength, rebounding from its all-time low of N1,900 against the US dollar in February. The currency began its gradual appreciation in March, reaching N1,230 at the parallel market in the first week of April. The challenges for the Naira began when President Bola Tinubu announced plans to float the currency as part of comprehensive monetary policy reforms aimed at achieving a single exchange rate.
The Central Bank of Nigeria (CBN) subsequently adopted a clean float foreign exchange management policy, unifying all segments of the FX market. This move led to the devaluation of the Naira and the abolition of multiple exchange rate windows. However, the policy also exacerbated inflation, resulting in increased costs of goods and services.
Stakeholders expressed differing opinions on the decision to float the Naira. Some believed it was ill-advised, while others urged the CBN to use monetary policy tools to stabilize the currency and tackle inflation. In response, the CBN adopted aggressive tightening measures, including raising the Monetary Policy Rate (MPR) by 400 basis points in February and another 200 basis points in March.
These tightening measures, coupled with other reforms such as the revocation of operational licenses of Bureaux De Change (BDCs) and the clearance of a backlog of foreign exchange claims, contributed to the recent stability in the foreign exchange market. The Naira responded positively to these actions, gaining value and reaching a more favorable exchange rate against the dollar.
However, concerns were raised about the impact of high-interest rates on the private sector, with the Lagos Chamber of Commerce and Industry (LCCI) highlighting the drying up of funds from the private sector into government treasuries. The LCCI urged the CBN to reconsider its decision on interest rate hikes, emphasizing the need to achieve objectives such as curbing inflation without hindering private sector growth.
As the Naira continues to respond positively to monetary policy measures, stakeholders remain hopeful that the currency will sustain its upward trajectory. Many Nigerians anticipate a further strengthening of the Naira against major currencies in the near future.
