Will ongoing reforms strengthen naira?

Nigeria's currency, the naira, has been the subject of much discussion in recent times, with the World Bank recommending the country to maintain a tight monetary policy until a sustained disinflation path is achieved. Bankole Odusanya, Chief Dealer, Treasury at Polaris Bank, joined CNBC Africa to discuss the ongoing reforms and their impact on the naira. The key theme of the discussion was the importance of stability and policy effectiveness in the Nigerian currency market. Odusanya highlighted the need for the exchange rate to reflect market conditions while emphasizing the significance of expanding the market. The conversation delved into the current trading status of the naira and the strategic approach taken by the Central Bank and Monetary Policy Committee. Odusanya expressed support for chasing stability over revaluation, citing the pressure from limited supply compared to growing demand towards the end of the year. He noted the positive impact of the tightening stance, with the Cash Reserve Ratio (CRR) at 50% and the issuance of OMO bills at attractive yields, boosting external reserves by $4 billion in four months. Looking ahead, Odusanya forecasted a potential increase in external reserves to $40 billion, providing a buffer for the Central Bank to manage currency demand. He emphasized the Central Bank's goal of sustainability and stability in currency rates, indicating a target trading range around 1.5 naira to the dollar. Discussing potential risks, Odusanya pointed to inflationary pressures and the impact of removing petrol subsidies on the fiscal front. He highlighted the ongoing FX exchange claims revalidation exercise by the CBN and projected a continued tight monetary policy stance. Looking towards the next Monetary Policy Committee (MPC) meeting, Odusanya anticipated a further 50 basis point hike in the NPR, considering the need to manage inflation and incentivize holders of naira. While acknowledging the tight liquidity situation, he did not foresee significant adjustments to the CRR. Overall, the consensus was on the importance of maintaining stability and policy effectiveness to navigate the challenges facing the naira amid ongoing economic reforms.