Yusuf made the call in his economic review for July made available to us themed “The Naira exchange rate conundrum” on Monday.
Yusuf said the current crash in the Naira against the dollar in the foreign exchange market is a volatile change given the long period of distortions in the FX market.
According to him, it is evident that the frequency and scope of CBN intervention in the forex market had decelerated compared to the first five months of the year.
Recall that the CBN in June 2023, announced the unification of the foreign exchange window. The decision which permitted the floating of the Naira, has made the Naira to constantly depreciate against the dollar.
He said, “Recent reports from the CBN indicate a total of $17 billion intervention by the CBN in the forex market in 2022. This is 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. It is expected that as the scale of intervention improves, the volatile will be subdued. “
Although volatility in the FX market was inevitable, Yusuf stressed that 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.
He said, “We recognize the forex supply limitations, but the system needs to be managed in a way that would not undermine investors’ confidence.
“And with a more liberalized 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.
“Also, erosion of confidence triggers speculation and influences expectations which in turn triggers diverse responses among economic players.
“The foreign exchange market is evidently under pressure as a result of some factors, however, there was a curious surge in monetary expansion in the last month.
“Money supply grew by an unprecedented 15 per cent in one month between May and June 2023. Broad money grew by over N9 trillion, from N55.7 trillion to N64.9 trillion. This surge in monetary growth is unprecedented.
“This must have affected the exchange rate. The monetary authorities should investigate this drastic growth in the money supply and take steps to curb subsequent expansion. Such dramatic growth in money supply poses a significant risk to macroeconomic stability, especially price stability.”