Controlling Financial Pressures: The FG & CBN Gold Moves

The recent Monetary Policy Committee (MPC) Meetings held on Monday and Tuesday, featuring the Governor of the CBN, Yemi Cardoso, and other key financial stakeholders, marked a significant event for the country’s monetary and fiscal policies. At the MPC meeting, the committee made a decision to tighten the monetary policy by increasing the monetary policy rate by 400 basis points to 22.75%, adjusting the asymmetric corridor to +100bps/-700bps from +100bps/-300bps, increasing the Cash Reserve Ratio (CRR) from 32.5% to 45.0% and maintaining the liquidity rate at 30.0%. Focusing on the need for a robust foreign exchange market, the CBN placed emphasis on ensuring ample supply. The apex bank also indicated an upward trajectory in interest rates, signalling higher stop rates at upcoming Open Market Operations (OMO) and Nigerian Treasury Bills (NTBs) auctions.

Another significant engagement held during the week was that between Nigeria’s financial authorities and potential foreign portfolio investors – the investor call organised by the Nigerian Exchange Group on Thursday, February 29, 2024. This platform facilitated dialogue between foreign investors and Nigeria’s financial regulatory body, the CBN. Among the key discussions was the CBN’s commitment to resolving all outstanding FX backlogs promptly.

During the last Monetary Policy Committee (MPC) meeting, the CBN disclosed that it had successfully cleared an additional $400 million of the $2.2 billion backlog, making the remaining $1.8 billion the current target for clearance. Furthermore, the CBN reiterated its stance on the undervaluation of the Naira, attributing the current FX pressures to panic-induced asset monetisation.

To manage liquidity and offer attractive investment avenues for foreign portfolio investors, the CBN plans to increase the frequency and volumes of OMO activities. Additionally, it’s committed to combating inflation and maintaining price stability, with a clear understanding of the factors driving inflation, including currency pressures. Assuring market stability, the CBN pledged to intervene whenever distortions occur and ensure sufficient liquidity for the smooth entry and exit of foreign investors, considering this a top priority in the near term. From all indications, the CBN is focused on enhancing policy effectiveness, affirming the thoughtfulness of current policies and readiness to implement corrective measures where necessary.

In tandem with this development, noteworthy actions were taken by the Federal Government (FG) concerning Binance, a prominent cryptocurrency exchange platform. The FG imposed a ban on Binance and levied a hefty $10 billion fine against it. These measures were predicated on allegations of Binance’s involvement in Nigeria’s forex crisis, as asserted by Bayo Onanuga, a special adviser to the President. Onanuga highlighted Binance’s purported engagement in what he described as ‘illegal transactions’ within Nigeria, coinciding with substantial losses experienced by the nation. He further emphasised that Binance operates within Nigeria without due registration, thereby facilitating the manipulation of dollar-naira exchange rates on its platform. While this regulatory stance can be interpreted as a prudent step to safeguard Nigeria’s financial stability, it also raises concerns regarding its potential impact on foreign investments within the country.

The close of the week witnessed the first OMO auction of the year. The bids for the lowest tenor were the same as the total sale recorded for them. Both the mid and highest offers had a slight decrease in the total sales compared to their bids. The 361-day tenor, the highest tenor, once again attracted the highest demand, with bids significantly surpassing the offer. When compared to the previous auction, the stop rate indicated a higher yield compared to the previous auction.