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The worst of Naira volatility – Cardoso

Governor of the Central Bank of Nigeria, Olayemi Cardoso, has expressed satisfaction with the progress in stabilizing the naira and said extreme volatility may be a thing of the past. “I think we’ve more or less seen the worst in terms of volatility,” he said in an interview yesterday.

Cardoso emphasized the importance of closely monitoring the market to ensure optimal value is achieved using various tools during an interview with Bloomberg TV on Tuesday.

Since taking office in September, Cardoso has implemented several measures to restore traditional monetary policies, address rampant inflation, attract foreign investment and stabilize Nigeria’s currency.

Despite these efforts, the annual inflation rate remains high due to currency devaluation, food insecurity, and the elimination of energy subsidies. Last month, headline inflation rose to 33.95 percent in May 2024.

To combat inflation, interest rates have been raised by 750 basis points this year, reaching 26.25 percent. In addition, a foreign exchange backlog has been resolved and the country’s foreign exchange policies have been reviewed, effectively devaluing the naira.

The measures have resulted in the naira trading within a narrow range of 1,473 to 1,490 naira per dollar this month. Consequently, 10-day rolling volatility is at its lowest level in over a year, with 100-day swings at its lowest level since January.

“We are relatively satisfied with where we are,” Cardoso said in the interview with Bloomberg.
However, he acknowledged the need for continued efforts, stating: “It is a continuous work in progress. And we will do everything we can to make sure we continue to manage the macroeconomic fundamentals that affect that.”

Cardoso did not confirm whether the recent improvements against inflationary pressures signal the end of the adjustment cycle that began in May 2022. “The data will determine whether you will see more increases or not,” he said. The Monetary Policy Committee (MPC) has consistently highlighted inflation as a major threat to Nigeria’s future, pledging to keep it under control and reduce it as much as possible.

Economic experts point out that central bank measures and tax reforms have improved liquidity. Notably, the federal government obtained $2.25 billion in financing from the World Bank to support economic reforms and increase foreign exchange reserves. Cardoso refrained from speculating on whether this could mark the end of the tightening cycle ahead of the MPC meeting in mid-July, reiterating: “The data will determine whether you will see further increases or not.”

Central bank measures and tax reforms have also bolstered Nigeria’s foreign exchange reserves. “We should have a diversity of sources,” Cardoso said, emphasizing the need for a varied approach beyond reliance on the eurobond market or foreign portfolio investors. Instead, he advocates for a diverse mix of funding sources to strengthen the country’s economic stability.

Cardoso said his leadership aims to maintain a steady course, focusing on managing macroeconomic fundamentals and ensuring sustained progress in stabilising the naira and controlling inflation.

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