Inflation reduction will prompt a decrease in interest rates. The Central Bank of Nigeria (CBN) plans to penalize banks for inadequate service quality and cash hoarding at ATMs.
The Central Bank of Nigeria (CBN) has indicated that the present exchange rate for the naira does not accurately represent the intrinsic value of the local currency.
CBN Governor Olayemi Cardoso announced this information yesterday during the 59th Bankers Night event hosted by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos.
Currently, the naira is trading at N1,720 to the dollar in the parallel market, while the official rate is below N1,663 to the dollar. Cardoso indicated that the existing exchange rate for the US dollar reflects the amounts that the most desperate buyers are willing to pay, which does not accurately represent the naira's true market value.
He expressed optimism that the implementation of an electronic marketing system will rectify these discrepancies by improving the price discovery process for the naira. Furthermore, he noted that this initiative will enhance the Central Bank's oversight and integration capabilities, contributing to a more stable and transparent foreign exchange market.
Cardoso mentioned that the exchange rate has remained relatively stable since June and dismissed rumors regarding a supposed demand-supply gap in the foreign exchange market as unfounded.
He emphasized that an FX market reliant solely on the Central Bank's buying and selling of dollars is insufficient for the requirements of a dynamic economy like Nigeria's.
“Now is the time for banks to enhance their intermediation and market-making roles, providing customers with effective solutions to manage their businesses and risks,” he stated.
Regarding interest rates, he indicated that cuts would begin once inflation shows signs of decline. He noted that inflation is already demonstrating signs of reduction, and the Central Bank plans to take measures in 2025 to ensure this trend continues.
The governor of the central bank announced that the CBN will start imposing penalties on banks that provide subpar service and fail to ensure adequate cash availability at Automated Teller Machines (ATMs).
He indicated that inspections of banks will begin on December 1, 2025, and any institution that does not meet the required standards will face consequences.
To date, banks have incurred fines totaling N29 billion for various regulatory violations, and the central bank will persist in enforcing compliance among financial institutions.
Cardoso noted that the market has facilitated over $9 billion in capital outflows in the past year, allowing investors to repatriate capital and dividends without the lengthy delays previously experienced.
He expressed optimism for an increase in remittances from the diaspora in the upcoming year, targeting $1 billion in monthly inflows.
He underscored the importance of enhancing transparency, bolstering the Central Bank's credibility, and fostering public trust in its policies. These measures would empower businesses and investors to make informed decisions and assure households that monetary decisions are made with their best interests in mind.
This approach promotes accountability through transparent communication and constructive feedback.
"It is worth noting that many of the initiatives implemented by the Central Bank over the past year have been the result of dialogue and listening to the concerns of the public," he stated.
"These funds could have made a significant contribution to crucial investments in education, healthcare, and infrastructure development," he said.