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By Merit Ibe
The Centre for the Promotion of Private Enterprise (CPPE), has disclosed that broad money which grew by over N9 trillion, from N55.7 trillion to N64.9trillion is pressuring the naira in the foreign exchange market.
President of the centre, Dr. Muda Yusuf, who made the remark in his statement titled: “The Naira Exchange Rate Conundrum,” noted that there is a curious surge in monetary expansion in the last one month, adding that money supply grew by an unprecedented 15 percent in one month between May and June 2023.
Dr. Yusuf said the surge in monetary growth is unprecedented and therefore advised the monetary authorities to investigate the drastic growth in money supply and take steps to curb subsequent expansion, noting that such dramatic growth poses a significant risk to macroeconomic stability, especially in prices.
Yusuf also called on the monetary authorities to come up with a sustainable intervention framework to ensure the moderation of current volatility in the forex market.
He said the system needs to be managed in a way that would not undermine investors’ confidence. “Erosion of confidence triggers speculation and influences expectations which in turn triggers diverse responses among economic players.
“There was a curious surge in monetary expansion in the last one month. Money supply grew by an unprecedented 15% in one month between May and June 2023. Broad money grew by over N9 trillion, from N55.7 trillion to N64.9 trillion.
“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.
“With a more liberalised forex market, the pressure of the backlog of unmet demands and other maturing forex related obligations have been unleashed on the investors and exporters window.
“Transiting from a repressive market environment to a more liberalised market could be a source of market instability. However, there is need for vigilance to prevent questionable capital outflows or speculative assault on the currency. A free market is not synonymous with complete absence of regulation. Free enterprise has to be complemented with an appropriate regulatory framework to curb illicit financial flows,” he said.
The CPPE boss said President Bola Tinubu’s administration is on the right path and that the current volatility in the foreign exchange market are challenges of a major policy transition. “In a couple of months, we expect the instability to subside. There would be an improvement in oil output which would boost forex earnings,” he said.
“The prospects of improved domestic refining of petroleum products in the coming months will reduce forex demand pressure from importation of petroleum products.
“Improved investors confidence will boost Foreign Direct Investment [FDI] and foreign portfolio investments, and other remittances.
“CBN should exercise better oversight on forex demands to ensure protection of the market from speculative assault and illicit capital outflows.”
