There’s more commitment to improving dollar supply in order to meet market demand than worrying over the valuation of the naira: CBN

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The Central Bank of Nigeria (CBN) yesterday said it was more committed to improving dollar supply in order to meet market demand than worrying over the valuation of the naira.

Reuters quoted CBN Director, Monetary Policy Department, Hassan Mahmud, as saying this during a virtual investor conference.Mahmud said, “What we are worried about is the supply side and the confidence in the system.”

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The naira depreciated to N532 to the dollar on the parallel market yesterday.Nigeria is battling dollar shortages brought on by low oil prices following disruptions linked to the COVID-19 pandemic. The central bank has devalued the currency three times since March 2020, but the naira has continued to weaken.In June, CBN Governor, Mr. Godwin Emefiele, said the country’s spot naira rate was overvalued by about 10 per cent, citing the bank’s real effective exchange rate model.But Mahmud said the level of the naira was expected to adjust based on demand but market failures had made the bank adopt a managed float regime.

He said the spot rate was the reference rate and he expected a convergence of the country’s several exchange rates.The naira on Tuesday traded at N411 to a dollar on the official spot market, in the range of N407 to N412, where it has been since June.Citing several infractions, the CBN had in July discontinued the sale of forex to Bureau De Change operators (BDCs) in the country and directed commercial banks to begin accepting cash deposits of foreign exchange from their customers as well as meet all legitimate demands from the public.The CBN had severally allayed concerns about developments in the forex market; regularly assuring investors and the public that there was no cause for alarm.

In November last year, Emefiele said the parallel market could not be used to determine the true value of the country’s currency, pointing out that the value of the naira can only be determined by forces of demand and supply.Describing the black market as tainted, he said it only accounted for five per cent of total foreign exchange market share – and could not determine the worth of the naira.The CBN governor had reacted to some analysts whom he accused of erroneously misleading Nigerians into believing that the current official exchange rate was about N480 to the US dollar at the time using the parallel market rate.He said, “For the information of everybody, parallel market as we know and from the data that we have, is a shallow market in Nigeria with not more than five per cent of market share.“Parallel market, and quote me – is a tainted market in Nigeria – where people who desire to deal in illegal exchange transactions, including sourcing of FX cash for purpose of offering bribe, corruption, that is where they deal.

”The CBN governor also said, “And that is where people who are supposed to understand the implication of this on economic activity in our country begin to go to television and say our exchange rate is N480.“This is very unfortunate that this is the way those who are supposed to know try to bend numbers in this country.“Parallel market is a market where people who don’t want to provide documentations to support their transactions deal in and cannot be a basis to determine the value of our currency.”

Emefiele added, “Everybody knows and it is accepted, the NAIFEX market, which is predominantly the I&E window, is the market that should be used to determine the value of our naira.”

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