Central bank interventions will stabilise naira – PwC

Professional services firm, PwC, has stated that the interventions by the Central Bank of Nigeria will stabilise the naira in the long run.

That was indicated in its latest Nigeria economic outlook, titled ‘Navigating economic reforms’.

PwC said, “Interventions by CBN may cause the Naira to stabilise in the long-term. However, these interventions may become subdued in the absence of improved capital flows and export proceeds to the foreign reserves.

“Capital importation increased by six per cent to $1.1bn in Q4 2023 from $1.0bn in Q2 2023. The increase was driven by the growth in Foreign Portfolio Investments (189 per cent increase from $106.9m to $309.8m) and Foreign Direct Investments (113.9 per cent increase from $86m to $183.9m) between Q2 and Q4 2023.”

It added that the increase in FPIs was driven by an increase in flows to money market instruments while FDIs were driven by flows to equity investments.

“Capital importation may continue to improve in 2024 due to the policy actions by the CBN aimed at rebuilding investor confidence. Some of the actions implemented by the CBN include settling FX backlogs, increasing MPR to 26.25 per cent to maintain price stability, etc,” the report added.

In May, the Monetary Policy Committee of the CBN raised the benchmark lending rate to 26.25 per cent, citing the need to rein in inflation.

However, a number of the members of the committee also expressed concerns about the illiquidity in the foreign exchange market, which had fuelled volatility in the market.

In their statements, the MPC members said there was a need to sustain a tight monetary policy stance to make domestic yields more attractive for domestic and foreign investors.

A member of the committee, Emem Usoro, who voted to raise the MPR by 150 basis points to 26.25 per cent, averred that further tightening of the financial conditions would reduce the negative interest gap and attract more capital inflows to stabilise the naira exchange rate.

She explained, “Sustaining a tight monetary policy stance potentially makes domestic yields more attractive for domestic and foreign investors, supports the naira and accretion to the external reserves. It also helps tame imported inflation, which is crucial given the import-dependent nature of the Nigerian economy.

“Looking forward, the domestic outlook remains cautiously optimistic, as the economy is projected to expand in the near term. This outlook is hinged on fiscal reforms, infrastructural development initiatives, efforts toward continuous deepening of the financial markets through FCY-denominated debt instruments, positive expectations around crude oil prices, increased domestic oil production, and commencement of operations at the Port Harcourt refinery.

“Additionally, a tight monetary policy stance is expected to support this outlook by attracting more capital inflows to improve accretion to reserves. Inflation is, however, expected to remain elevated, but commence moderation in the second half of the year, due to the tight monetary policy, and base effects.”

Meanwhile, the Chartered Institute of Directors has expressed concern over the increasing departure of multinational companies from Nigeria, attributing it to forex issues, inadequate power supply, and inconsistent government policies.

In its ‘Position Paper on the Exodus of Multinationals from Nigeria’ signed by its Director General/Chief Executive Officer, Bamidele Alimi, CIoD suggested ways the government could reverse the trend.

On forex, CIoD said, “Improving foreign exchange policies is another key intervention. The CBN should adopt more flexible foreign exchange policies to ensure businesses can access foreign currency more easily. This could involve creating a more transparent and market-driven exchange rate system.”

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