FOREX market volatility rattles Tinubu, summons CBN Gov, may reverse free float policy
By Emma Ogbuehi
Apparently rattled by the volatility in the foreign exchange market, which has seen N950 exchanging for $1 on the parallel market, President Bola Tinubu, on Monday, summoned the Acting Governor of the Central Bank of Nigeria (CBN), Mr. Folashodun Shonubi, seeking for solution.
In June, the CBN directed Deposit Money Banks to remove the rate cap on the Naira at the Investors and Exporters’ (I&E) Window of the foreign exchange market, to allow for a free float of the national currency against the dollar and other global currencies.
The development came barely two weeks after Tinubu promised to unify the nation’s multiple exchange rates.
Tinubu said after he was sworn on May 29, that his objective in adopting a floating exchange rate system was two-fold: first, to enable the naira to determine its actual value, and second, to narrow the gap between the official and parallel market rates, as well as curb profiteering by foreign exchange speculators.
But the consequence has been devastating and the terrible impact the falling rate of the naira is having on the living conditions of most Nigerians is excruciating.
Late July, the Economic Intelligence Unit (EIU) predicted a return to a managed control exchange rate system.
The analytical firm predicted a return to a Central Bank of Nigeria (CBN)-controlled exchange rate due to the intense pressure the Naira has faced since the president announced a switch to a floating exchange rate.
The firm also based its prediction on the CBN’s seeming lack of experience in managing a floating exchange rate system.
Though Tinubu insisted that the decision to float the Naira was one he was ready to stick to, indications emerged on Monday that he may have a rethink.
Deeply concerned about recent developments in the foreign exchange market, TheNiche gathered that the president, who summoned the acting CBN governor to Aso Rock on Monday, has approved measures to stabilise and enhance liquidity in the market, including the parallel market.
Though the acting CBN governor failed to disclose what those measures are, a presidency source informed TheNiche that a return to a managed control exchange rate system may be the only option to stem the free fall of the Naira.
“At the rate things are going, if nothing is done urgently, N1,000 may be exchanging for $1 before the end of August and it can only get worse.”
Mr. Shonubi, who disclosed the president’s anxiety to journalists at the Presidential Villa, Abuja, after meeting with him, however, noted that the activities being witnessed at the parallel market are driven by speculative demands.
He said the President expressed worry over the impact on the average person, especially as all local economic activities are still influenced by parallel market exchange rates.
He warned that government will come hard on those involved in speculation in the foreign exchange market, including the parallel market.
He warned foreign exchange market speculators to be wary of their negative activities, revealing that they (speculators) are bound to suffer huge losses when government activates its planned strategies.
“Mr President is very concerned about some of the goings on in the foreign exchange market. One of the things we discussed is what could be done to stabilize and what could be done to improve the liquidity in the market and also the goings on in the various other markets, including the parallel market.
“He’s concerned about its impact on the average person, since, unfortunately, a lot of activities that we do, which are purely local, are still referenced to exchange rates in the parallel market.
“We’ve discussed and I’ve shared with him what we’re doing to improve supply. If you look at the official market, you’ll find that that market has been fairly stable and the spreads of the difference have not fluctuated as much.
“We do not believe that the changes going on in the parallel market are driven by pure economic demand and supply, but are topped by speculative demand from people.
“Some of the plans and strategies, which I’m not at liberty to share with you, means sooner rather than later, the speculators should be careful because we believe the things we’re doing, when they come to fruition, may result in significant losses to them.
“But my presence here is more about the concerns the President has and his needs to know that we are doing something about it, assurances of which I have given him totally.
“So I hope this helps. We are looking at it and we’re doing things which will significantly impact the market in a few days’ time and we will all see it.
“The intention is to ensure the environment operates at a level that’s more efficient, but also that is also very reasonable and does not have a negative impact to the best that we can on the lives of the average person,” Shonubi said.