Tinubu begins Monetary Policy Reforms, floats Naira

To ease tax burden on businesses, Tinubu signs four executive orders

In line with President Bola Ahmed Tinubu’s promise to carry out monetary policy reforms, particularly to ensure a single exchange rate for Nigeria, the new management of the Central Bank of Nigeria (CBN) yesterday adopted a clean float foreign exchange management, a possibility it foreclosed for years.

In a press statement signed by its director in charge of financial markets, Angela Sere-Ejembi, the apex bank announced immediate changes to operations in the Nigerian Foreign Exchange (FX) market.

 In a curious move, the central bank abolished its hitherto multiple exchange rate windows and collapsed them into the business-based Investors and Exporters (I&E) window.

“All segments are now collapsed into the Investors and Exporters (I&E) window. Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks,” Dr Sere-Ejembi said in a message to authorised dealers of forex.

In his inaugural speech on May 29, President Tinubu said the Central Bank of Nigeria must work towards a unified exchange rate. He also stressed the fact that the nation’s Monetary Interest Rate, currently at 18.5 percent, is anti-people and unproductive. “Interest rate is currently too high. It’s anti-people, anti-business. We have to work on all of those,” he stated.

It is not clear yet how he would convince members of the Monetary Policy Committee of the CBN to loosen the official interest rate benchmark to achieve his campaign promise. The central bank under suspended governor, Godwin Emefiele, has insisted it would continue on a tightening lane to tame Nigeria’s rising demand-pull inflation currently at 22.22 percent.

President Tinubu suspended Emefiele from office over terrorism financing allegations brought against him by the Department of State Services (DSS). Emefiele handed over operations of the apex bank to his deputy in charge of operations, Folashodun Shonubi.

In the new twist of events, the CBN re-introduced the “willing buyer, willing seller” model at the I&E window. Operations in the window are guided by the extant circular on the establishment of the window, dated 21 April, 2017 and referenced FMD/DIR/CIR/GEN/08/007. “All eligible transactions are permitted to access foreign exchange at this window,” the bank said in the statement.

In the new measures to collapse the exchange rate windows into one, the CBN has put an end to subsidization of forex through the RT200 programme as well as the Naira4Dollar remittance scheme.

The CBN under Emefiele had introduced the Naira4Dollar scheme to encourage processing of foreign exchange remittance through official means by giving N5 for every dollar remitted into the country.

It had also last year introduced the RT200 FX programme aimed at raising $200 billion in Foreign Exchange (FX) earnings from non-oil proceeds for the country over the next three to five years.

Naira Gains At Parallel Market

Meanwhile, the money market has started reacting to the development. This newspaper observed yesterday that the value of the naira plunged to N664.04 to the dollar at the official window whilst gaining marginally at the parallel market as analysts say the free float of the foreign exchange could lead to an easing of the supply challenge in the market.

From N474 to the dollar at which the dollar closed at the I&E window on Tuesday, it closed 28.61 per cent weaker at N664.04 as the naira gained N5 at the parallel market to close at N755 from N760 which it began Wednesday’s trading activity.

Foreign exchange traders at the parallel market became jittery following reports of a free float of the naira, as commercial banks and dealers in the forex market said they have been given the green light to sell forex freely, at a market-determined rate.

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President Bola Ahmed Tinubu had in his inaugural speech emphasized the need to harmonise foreign exchange rates in the country.  He had stated that “monetary policy needs thorough house cleaning. The Central Bank must work towards a unified exchange rate. This will direct funds away from arbitrage into meaningful investment in the plant, equipment and jobs that power the real economy.”

With the floating, currency hawkers say they are unsure of which way the market will swing in the coming days with the latest news.

“We bought at N760 on Tuesday but now we are selling at N760, which is almost a loss. So, we are careful until we know which direction the market is going,” one dealer said.

A parallel market trader told LEADERSHIP that at the end of yesterday, the naira closed stronger at N755 to the dollar at the parallel market.

Experts Commend Floating

Commenting on the floating of the naira, head, financial institutions ratings at Agusto & Co, Ayokunle Olubunmi, noted that at the right rate, the unification of the supply of dollars in the country is set to improve.

Olubunmi noted that, at the initial stage, there might be some volatility at the market, however, the rate will eventually stabilise with time.

“If it is implemented as stated, there will be some volatility in the short term, but the forex windows will converge at a rate lower than the prevailing parallel market rate. It is a good policy. The main challenge we have in the forex market is illiquidity or inadequate supply and the reason is that the price does not reflect the fundamental price of naira.

“It is good that they did not peg it but float it, if it is implemented as planned. 

On his part, the chief executive of Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, welcomed the bold step taken by the Tinubu administration towards the unification of the naira exchange rate.

According to him, “the liberalisation of the foreign exchange market would unlock the huge potential for investment, jobs and capital flows.  Investor confidence would be positively impacted.

According to him, the policy regime would reduce uncertainty and inspire the confidence of investors; as well as minimise discretion and arbitrage in the foreign exchange allocation mechanism.

“Rate unification does not imply that rates will be exactly the same in all segments of the market. The objective is to ensure that the differentials are very minimal, possibly between 5-10 per cent,” he stated.

On his part, the managing director of Highcap Securities Limited, Mr. David Adonri, said a directive from CBN to banks to sell dollars at market rate signals deregulation of the forex market.

According to Adonri, a market clearance rate determined by forces of supply and demand signals the unification of the exchange rate.

“This is a giant stride in deregulating the economy, coming at the heels of subsidy removal. The structural rigidities in the economy and pressure points are gradually being eliminated,” he added.

A senior stockbroker, Mr. Tunde Oyediran said: “This is a sign of good things that will happen to our market. It makes our stocks cheap to foreign portfolio investors and encourages them to buy value stocks. This will affect other spheres of our economy and bring foreign direct investment into the country.’

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CEO, Sofunix Investment and Communications, Sola Oni stated that it had been a long-awaited policy and it is consistent with the manifesto of President Bola Tinubu.

He said, “A unified exchange rate will bring about a realistic exchange rate. It is a measure of price discovery. It will narrow the wide gap between the official and parallel market rate. This shall enhance market efficiency, stabilise the balance of payment and protect the economy from the risk of imported inflation among others.”

Oni pointed out that the stock market was already responding to the new policy of exchange rate unification as reflected in the rally on NGX in the last couple of days, saying that the central bank has an obligation to address the supply side of forex to avert a situation of uncontrollable exchange rate at this juncture.

Equities Investors Gain N2.2trn In 2 Days

Meanwhile, after opening the week on Tuesday with N1.215 trillion, equities investors equally reaped additional N992 billion profit yesterday, making a cumulative N2.2 trillion gains within two days.

LEADERSHIP learnt some investors regained confidence in the market following the suspension of Mr. Emefiele.

The market had impressed with All Share Index (ASI) gaining 2,232.58 points, representing a growth of 3.99 per cent to close at 58,163.55 points even as market capitalisation swelled by N1.215 trillion to close at N31.670 trillion.

However, yesterday, the domestic stock market sustained its upward trend by N992 billion as All Share Index (ASI) gained by 1,821.51 points, representing a growth of 3.13 per cent to close at 59,985.10 points, to propel market capitalisation to N32.662 trillion as at the close of business yesterday.

The upturn was impacted by gains recorded in medium and large capitalised stocks, amongst which are; Nigerian Breweries, Presco, Lafarge Africa, Nigerian Exchange Group and Cutix.

As measured by market breadth, market sentiment was positive as 70 stocks gained relative to 13 losers. Dangote Sugar Refinery, FBN Holdings (FBNH), International Breweries, Seplat Energy,Transcorp Hotel, MTN Nigeria Communications (MTNN) and Sterling Financial Holdings Company recorded the highest price gain of 10 per cent each to close at N25.30, N15.95, N5.50, N1,320.00, N12.10, N284.90 and N2.75 respectively, per share.

TotalEnergies Marketing Nigeria followed with a gain of 9.99 per cent to close at N306.10, while NASCON Allied Industries rose by 9.97 per cent to close at N18.75, per share.

On the other hand, Pharma Deko led the losers’ chart by 9.65 per cent, to close at N2.06, per share.

Computer Warehouse Group (CWG) followed with a decline of 9.44 per cent to close at N1.63, while Northern Nigeria Flour Mills (NNFM) declined by 8.66 per cent to close at N12.65, per share.

BUA Cement depreciated by 6.52 per cent to close at N86.00, while Ardova Plc declined by 5.06 per cent to close at N16.90, per share.

The total volume traded advanced by 9.28 per cent to 1.297 billion units, valued at N21.080 billion, and exchanged in 11,947 deals. Transactions in the shares of United Bank for Africa (UBA) topped the activity chart with 230.764 million shares valued at N2.744 billion. Guaranty Trust Holding Company (GTCO) followed with 125.470 million shares worth N4.205 billion, while Zenith Bank traded 119.144 million shares valued at N3.972 billion.

Access Holdings traded 92.792 million shares valued at N1.450 billion, while Fidelity Bank sold 75.621 million shares worth N494.144 million.

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Explainer: How Floating Of Naira Affects BTA, Fees, PTA, SMEs

After the initial stance of the Central Bank of Nigeria (CBN), Nigeria has finally adopted a free float of the naira policy. The apex bank yesterday directed commercial banks to sell forex freely at market-determined rates.

What Does That Mean?

The free float of the naira means the government or a monetary authority like the CBN no longer determines the exchange rate.

It also means that the exchange rate at every point in time would be determined by the interaction of the market forces of supply and demand for foreign exchange. Simply put, the rate at which the naira gets exchanged for any foreign currency would be dependent on the agreed price reached by the buyer and the seller.

How Will Float Of The Naira Affect You?

The naira float will affect all Nigerians directly or indirectly. Nigeria is an import-dependent nation and what added cost incurred by product suppliers will be passed to the final consumers. It will have impact on different industries. However, our focus here is on effect of floating of the naira on BTA, PTA, SMEs and roles played by the commercial banks.

Effects On BTA, PTA, Applications For Medicals, Fees

Since the hope of many is that the floating of the nation’s currency will improve liquidity and stability in the market and attract foreign investors into the Nigerian economy as it will be determined by ‘Willing Buyer,’ ‘Willing Seller’ principle, Nigerians applying for personal travel allowance (PTA), Business Travel Allowance (BTA), medicals, school fees expect to access FX depending on supplies.

As the CBN yesterday announced that it has abolished the segmentation of the FX market into different windows and all transactions will now be done through the Investors and Exporters (I&E) window, where the exchange rate will be determined by market forces, applications for medicals, school fees, BTA/PTA, and SMEs, according to the apex bank, would continue to be processed through deposit money banks.

What Role Will Your Bank Play?

The floating of the naira means people can get forex at the banks for whatever rate the banks can afford to sell it. Banks and other institutions can now buy and sell dollars at their own rate. This will widen access for people as everybody doesn’t have to meet CBN for forex.


It is a simple economics that since the previous practice of the CBN pumping dollars in the FX market (from the reserves, which also depleted them) is essentially a subsidy for imports, which has made Nigeria more and more import dependent, letting go of the subsidy on the Naira will refocus the economy towards exports. 

This will create an incentive for complex production of a quality that can be competitive in the international market which could boost activities in the SME sector. This, however, must be supported with right trade policies to create such incentives for massive exports of finished, value added goods from Nigeria. 

According to analysts, the naira float could have positive and negative effects. A free market could cause fluctuations in imports and exports, but these can now be tracked and easily predicted from market events. Argentina and Egypt are examples of countries that floated their currency. It initially led to sharp increases in the cost of goods and services, but exports and foreign investments eventually helped maintain stability.


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