Is Tinubu’s Economic Policies Paying Off? Expert Explains Why Naira Is Gaining Against The Dollar
For weeks, the naira, Nigeria’s currency, has surged against the dollar, making it the world’s best-performing currency in April. Aside from gaining 14 percent in March 2024, the naira has rallied 12 percent this month after losing over 70 percent of its value in less than a year.
Since assuming office in May 2023, President Bola Tinubu has introduced economic policies that saw the country’s currency battered. The new administration floated the currency in a bid to unify the different exchange rates and attract investors.
What was witnessed was a steady ‘free fall’ of the naira. However, the naira has continued to regain some of its lost value, thanks to some policies being implemented by the country’s Central Bank headed by Yemi Cardoso, who was appointed as the bank’s Governor in September last year by President Tinubu.
In late February 2024, Yemi Cardoso, increased the Monetary Policy Rate (MPR) from 18.75 percent to 22.75 percent. A month later, the apex bank increased it again to 24.75 percent, during a second Monetary Policy Committee meeting in Abuja on March 26, 2024.
“From our perspective, the key thing is to be fully focused on our core mandate to fight inflation and stabilise the economy. The purchasing power of the average person should be restored to the level it should be,” Cardoso said.
The naira, which depreciated to ₦1,600 to the dollar in early March, has since appreciated, and now trades at ₦1070.
But there are other factors responsible for the recent surge in the value of naira. One contributor to the increase being witnessed is the clearance of the country’s backlog of FX.
On March 20, 2024, the apex court announced it had successfully cleared all verified backlogs of foreign exchange it inherited from past administrations. “The Central Bank of Nigeria has announced that all valid foreign exchange backlogs have now been settled, fulfilling a key pledge of the CBN Governor, Olayemi Cardoso, to process an inherited backlog of $7bn in claims,” the bank’s Acting Director of Corporate Communications, Sidi Ali, said.
She added, “Clearance of the foreign exchange transactions backlog is part of the overall strategy detailed in last month’s Monetary Policy Committee meeting to stabilise the exchange rate and thereby curb imported inflation, spurring confidence in the banking system and the economy.”
Damilare Akanni, a Financial Analyst, told Neusroom that the recent appreciation of the naira was possible because the “CBN became an active player in the foreign exchange market by regularising prices and coined policies that reduced the demand for dollars.”
On April 8, The Central Bank of Nigeria sold $10,000 to each Bureau De Change operator at a rate of N1,101 per US dollar. In a circular, signed by W.J. Kanya on behalf of the Director of the Trade and Exchange Department, the apex bank also instructed each BDC to sell the dollars to eligible customers at a rate not exceeding 1.5 per cent above the purchase price.
Akanni also added that “another policy that has added credibility to the naira is the insistence that companies resident in Nigeria cannot transact in dollars and transfer dollars within Nigeria except it’s overseas.”
Also, Nigeria’s external reserves recorded an increment of 2.83 percent year-to-date from $33.17 billion at the beginning of the year to $34.11 billion as of March 7, 2024. This is as the country witnessed an increase in money sent home by Nigerians living abroad, including increased interest on Foreign investor demand for Nigerian assets.
In February alone, Nigerian assets purchased by foreign portfolio investors exceeded $1 billion, bringing the total receipts, as of March 8, to $2.3 billion. This is compared to $3.9 billion for the whole of 2023.
According to Akanni, the increase in external reserves gives confidence to the international community as CBN can intervene in currency markets to mitigate excessive fluctuations.
“It gives confidence to the international community about our monetary and exchange policies and it tends to drive economic growth. It also increases the international value of the naira,” he said.
There are indications that the Naira will continue to appreciate. Andrew Matheny, an analyst at Goldman Sachs Group, a leading global investment banking, securities and investment management firm, said that the naira can even appreciate below ₦1,000 to the dollar,
“This probably can run further; we would see an extension of the move to 1,000 and maybe even sub-1,000,” he said in an interview.
