Forex interventions give false hope on naira, says IMF – Newstrends
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Forex interventions give false hope on naira, says IMF

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REGULAR foreign exchange (forex) interventions in Nigeria and other emerging economies create false sense of security and hope on the local currency, the International Monetary Fund (IMF), has warned.

Nigeria, which operates a flexible exchange rate regime, spends about $16 billion annually to defend the naira.

A large part of the forex interventions are auctions at the inter-bank spot, sale of dollar for invisibles; Small and Medium Enterprises (SMEs); Bureaux De Change (BDC); Investors and Exporters (I&E) Forex window and Forwards.

In a joint report released at the weekend by IMF Director, Monetary and Capital Markets Department, Tobias Adrian; Director of the Fund’s Research Department; Gita Gopinath and Director of the Strategy, Policy and Review Department Ceyla Pazarbasioglu, the trio said that while flexible exchange rates can act as a useful shock absorber in the face of capital flow volatility, they do not always offer sufficient insulation.

They said the impact of the interventions is worse when access to global capital markets is interrupted or market depth is limited.

The report quoted Fund as saying “Persistent interventions might feed a (false) sense of security about future exchange rate developments that leads firms or households to take on more foreign currency debt, thus increasing balance sheet vulnerabilities.”

The IMF team said that in a continuous effort to help countries manage volatile cross-border capital flows, it has taken a major step toward a new analytical macroeconomic framework that can guide appropriate policy responses.

IMF analysis suggests that there is no “one-size-fits-all” response to capital flow volatility, nor is it a case of “anything goes” or that all policies are equally effective.

“Optimal policies depend on the nature of shocks and country characteristics. For instance, the appropriate policy response in a country with less developed financial markets and large foreign currency debts may differ from that of a country that does not have foreign currency mismatches on their balance sheets, or those that can rely on more sophisticated (deep and liquid) markets.”

“Generally, in countries with flexible exchange rates, deep markets, and continuous market access, full exchange rate adjustment to shocks remains appropriate.

“However, when a country has certain vulnerabilities, such as shallow markets, dollarization, or poorly anchored inflation expectations, while flexible exchange rates continue to provide significant benefits, other tools can play a useful role as well.

“In particular, macro-prudential measures, foreign exchange intervention, and capital flow management measures can enhance monetary policy autonomy so monetary policy can adequately focus on containing inflation and promoting stable economic growth. The same tools—including precautionary capital flow management measures on capital inflows, applied before shocks hit—can also help lower financial stability risks.”

For them, the work reflects evolving thinking on macroeconomic policy and will feed into the upcoming review of the IMF’s Institutional View on the Liberalization and Management of Capital Flows, which currently guides the Fund’s advice and assessments of members’ policies.

According to the Fund, international capital flows provide significant benefits for economic development but can also generate or amplify shocks. This dilemma has long posed challenges for policymakers in many open economies.

It said that many policymakers reach for a mix of policy tools to complement interest rate policy when dealing with capital flows. These tools include macro-prudential measures, foreign exchange intervention, and capital flow management measures.

Such diverse approaches were also used during the COVID-19 crisis, with significant differences in responses between countries. However, despite the widespread use of the various tools, to date, there has been no clear conceptual framework to guide the integrated usage of these tools.

The new framework represents a significant advance in thinking about when various tools should and should not be used and how these tools can work together to achieve better outcomes.

-The Nation

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Forex: Naira sells at N1,500/$ parallel market

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Forex: Naira sells at N1,500/$ parallel market

 

Naira traded at N1,500/$ on Wednesday at the parallel market, representing a gain of 9.09 percent from N1,650/$ recorded on Monday.

The Bureau de Change (BDC) operators, quoted the buying rate at N1,450 and the selling price at N1,500 — leaving a profit margin of N50.

At the country’s official window, the naira also appreciated to N1609.51 against the dollar on Wednesday — a 1.67 percent increase from the N1,582.94/$ traded on Monday.

Olayemi Cardoso, governor of the Central Bank of Nigeria (CBN), has said the naira is undervalued largely due to distortions by perpetrators in the foreign exchange market.

“As and when we come up with these distortions, we will take them off and throw them away and where there are distortions that come about as a result of bad behaviour, we will ensure that those who do it will face the music as a deterrent to ensure that others in future do not take that route,” Cardoso said.

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Just in: Air Peace crashes London flight fare to N1.2m

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Air Peace crashes London flight fare to N1.2m

Travellers on Air Peace London flight will pay N1.2 million and N4 million respectively for Economy and Business classes, with effect from March 30.

The airline announced this in a statement issued on Wednesday in Lagos by its Corporate Communications Lead, Mr Stanley Olisa.

Flight tickets for London in Nigeria are between N2.3 million and N4.2 million for economy and N6 million for business class.

Olisa said the flight schedules for Air Peace London route available on the airline’s website showed that it had crashed the price of its flight tickets.

“A return economy class ticket goes for N1.2 million, while a return business class ticket sells for N4 million.

“Nigerians studying in the United Kingdom can also now access their special 15 per cent rebate on the already reduced economy fares.”

The airline had announced a special fare for Nigerian students in the UK when it hosted travel agents in Lagos in preparation for the launch of the London route.

Olisa also said London would be the airline’s seventh international destination since kicking off operations about 10 years ago.

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Breaking: MTN, others get approval to block SIMs without NIN from Feb 28

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Breaking: MTN, others get approval to block SIMs without NIN from Feb 28

The Nigerian Communications Commission (NCC) has given approval to telecom operators to bar telephone subscribers not linked to their National Identification Numbers (NIN) by February 28, 2024.

Executive Vice Chairman of NCC, Dr Aminu Maida, disclosed this on Wednesday during the NCC’s Special Day at the 45th Kaduna International Trade Fair.

Maida, represented by Reuben Mouka, NCC’s Director of Public Affairs, said for national security, telecom consumers must link their NIN to their SIM.

He reiterated that the February 28 deadline given to telecom operators to bar subscribers who failed to link their NIN to SIM, remained unchanged.

Mouka said, “The National Communication Commission has directed all telecommunication operators to bar phone lines of subscribers whose lines are not linked to their NINs on or before February 28, 2024.

“As a regulator of the telecommunications sector in the country, the Commission carries out its functions to ensure service availability, affordability, and sustainability for all categories of consumers, who are leveraging ICT/Telecoms to drive personal and business activities.

“Conversely, as we promote economic growth through the development of local content, we must also address the challenges faced by consumers and NCC is committed to protecting their rights while ensuring their satisfaction.”

The NCC boss, therefore, urged telecom firms to prioritize customer satisfaction and uphold the highest standards of service delivery, noting that the commission has implemented measures to safeguard the interests of consumers and businesses alike.

One such measure, he said, was the NCC’s directive on May 17, 2023, that all licensed Mobile Network Operators commence implementation of approved Harmonised Short Codes for providing services to Nigerian telecom consumers.

He added: “The new initiative is enabling consumers using the over 224 million active mobile telephone lines in Nigeria to use the same codes to access services across all networks.”

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