The Central Bank of Nigeria (CBN) says it will not target a predetermined exchange rate for the naira, insisting that the currency’s value should be determined by market conditions and underlying economic fundamentals….
The Central Bank of Nigeria (CBN) says it will not target a predetermined exchange rate for the naira, insisting that the currency’s value should be determined by market conditions and underlying economic fundamentals.
CBN Governor Olayemi Cardoso made the clarification while responding to questions about an International Monetary Fund estimate that the naira could be undervalued.
Cardoso said the CBN remained committed to maintaining a transparent and liquid foreign exchange market based on willing buyers and willing sellers.
“Our view is one of continuing on the path that we had embarked on and that is to ensure that we have a market that is transparent, that is liquid and one that has willing buyer, willing seller,” he said.
He said there was no single exchange-rate level that the CBN could prescribe as the appropriate value of the naira.
“Where that price settles is a function of a number of different things,” Cardoso said.
He identified oil exports, foreign direct investment, domestic productivity and efforts to reduce imports among the fundamentals that would ultimately influence the currency.
“Without fundamentals kicking in, oil and oil export, FDIs, domestic productivity to reduce imports, all those things need to kick in,” he said.
Cardoso also said the foreign exchange market had become more transparent and liquid, with daily turnover sometimes exceeding $1 billion.
He argued that the current exchange-rate framework was responding to reforms implemented by the CBN.
“A very important issue at the present level, the country does need a competitive currency,” the governor said.
The MPC’s position comes as the CBN continues to emphasise exchange-rate stability as one of the factors supporting the moderation of core inflation.
At the July MPC meeting, the committee noted that core inflation fell to 15.92 per cent in June from 16.82 per cent in May, with the CBN attributing the improvement largely to exchange-rate stability.
The CBN has also maintained that its broader foreign-exchange reforms are intended to improve transparency and reduce distortions in the market.
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