An economist, Muda Yusuf, has charged the monetary authorities to provide a sustainable intervention framework to ensure the moderation of current volatility in the foreign exchange market.

Mr Yusuf, the founder of the Centre for the Promotion of Private Enterprises (CPPE), said this in a statement. He noted that while the volatility in the foreign exchange market was naturally unsettling, it was not unexpected given the long period of distortions in the foreign exchange market.

“The foreign exchange market is evidently under pressure as a result of a number of factors such as surge in monetary expansion in the last one month as money supply grew by an unprecedented 15 per cent in one month between May and June 2023,” the financial expert explained. 

He added, “Obviously, this must have had an effect on the exchange rate and the monetary authorities should investigate this drastic growth in money supply and take steps to curb subsequent expansion. Over the last few years, there had been a cumulative backlog of unmet foreign exchange demand, running into billions of dollars as a result of acute illiquidity in the foreign exchange market.” 

Mr Yusuf noted that with a more liberalised foreign exchange market, the pressure of the backlog of unmet demands and other maturing forex-related obligations was unleashed on the I&E window, stressing the need for vigilance to prevent questionable capital outflows or “speculative assaults on the currency.”

He pointed out that a free market was not synonymous with a complete absence of regulation, saying free enterprise has to be complemented with an appropriate regulatory framework to curb illicit financial flows.

“Recent reports from the CBN indicate a total of $17 billion intervention by the CBN in the forex market in 2022, an average of N1.4 billion per month. Since the inception of the present administration, it is doubtful whether we had seen an intervention of up to $1 billion in total, so it is expected that as the scale of intervention improves, the volatility will be subdued,” the economist explained. “Recently, the government paid $500 million to settle matured debt service obligation on Eurobond, and this could also be a constraining supply-side factor.”

Mr Yusuf noted that the marginal decline in foreign reserves was amplified by the media and also created some anxiety which could also have driven speculative activities in the foreign exchange market.

“In a couple of months, we expect the instability to subside,” he said, projecting that on the supply side, the trajectory is that there would be an improvement in oil output which would boost foreign exchange earnings.

(NAN)