The Monetary Policy Director of the Central Bank of Nigeria (CBN), Hassan Mahmud, has indicated that the institution is not concerned about the valuation of the naira and is instead interested in “increasing the supply of dollars in the foreign exchange market.”
Depreciation in naira
Mahmud’s remarks were made just a day after the local currency hit a new low of 532 naira for one dollar in the parallel market, according to a report. This new parallel market exchange rate differs significantly from the CBN’s current spot rate of around 411 naira to the dollar.
Despite the blatant differences between the two rates, Mahmud, speaking at a virtual investor conference, insisted that addressing this loophole was not the central bank’s priority. Mahmud stated:
We don’t really care about the rating. What worries us is the supply side and trust in the system.
Nigeria has been struggling with a lack of foreign currency since the second quarter of 2020, which in turn increases the pressure on the naira. To ease pressure on the naira, the CBN has devalued the currency three times since March 2020. In addition, the central bank has imposed a number of restrictions aimed at controlling foreign exchange.
Despite the devaluations and restrictions imposed, the naira has continued to lose ground against major currencies such as the US dollar due to what Mahmud calls a “market failure”. According to the CBN’s director of monetary policy, it was these market failures that prompted the central bank to “put in place a managed floating regime.”
What is more important for Nigeria, currency valuation or USD supply? Let us know what you think in the comments section below.
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