The Central Bank of Nigeria (CBN) is playing a pivotal role in stabilizing the economy through effective foreign exchange management, inflation control, and the promotion of foreign capital inflows.
Despite ongoing challenges such as fiscal dominance and structural issues, the apex bank is actively collaborating with other authorities to implement well-sequenced monetary policies aimed at restoring market confidence. These initiatives have led to improved foreign exchange (FX) inflows, a decrease in inflation rates, and overall economic growth.
The effectiveness of monetary policy is crucial for building a sustainable economy and fostering business growth, with the goal of significantly impacting inflation, ensuring exchange rate stability, and promoting economic expansion.
Under the leadership of Olayemi Cardoso, the CBN recognizes the importance of continuously enhancing monetary policy effectiveness to navigate the current economic landscape. The bank has undertaken several strategic initiatives as part of broader efforts to achieve economic stability.
These initiatives include fiscal-monetary policy coordination to prevent excessive government borrowing from undermining inflation control and economic growth. The CBN actively advises on sustainable fiscal practices to bolster these efforts.
Recent data highlights the success of the CBN’s strategies, with total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) rising by 21.4% to $2.34 billion between July and August of this year, driven by contributions from individuals and non-bank institutions.
Analysts anticipate that the surge in dollar inflows will aid in stabilizing the naira and alleviating exchange rate pressures. Additionally, policies aimed at converging official and parallel market exchange rates have reduced the premium to just 1.7% by mid-2024, restoring confidence in the naira.
The CBN’s ongoing efforts to liberalize the FX market and remove restrictions on 43 items have improved market transparency and liquidity, further attracting foreign investments.
Despite challenges such as high government borrowing and limited FX inflows, positive outcomes from foreign exchange management efforts are evident. Remittances from the diaspora increased by 23.48% year-on-year, reaching $2.34 billion in mid-2024, strengthening foreign exchange reserves.
Capital importation also saw a significant rise of 234.4% year-on-year, totaling $5.92 billion in the first half of 2024, attributed to policy reforms and the liberalization of the FX market.
As part of its stabilization efforts, the CBN raised the Monetary Policy Rate (MPR) by a cumulative 800 basis points to 26.75%, alongside increasing the cash reserve ratio to 45%, aimed at managing inflation and liquidity.
The successful reforms in the FX market have led to greater foreign investor participation and improved remittance services, encouraging investments from Nigerians abroad.
Positive economic indicators show Nigeria’s nominal Gross Domestic Product reached N60.93 trillion in the second quarter of 2024, driven by strategic interventions and a rise in crude oil production.
While inflation remains a concern, recent data indicates a gradual decline, with inflation dropping to 32.15% due to falling food prices. The close coordination between monetary and fiscal authorities is fostering stability in the economy.
Overall, despite challenges, analysts express optimism that the current exchange rate framework will enhance transparency, reduce transaction costs, and boost investor confidence in Nigeria’s economic landscape.