Eromosele Abiodun with agency report
Central Bank of Nigeria (CBN) Monetary Policy Director Hassan Mahmud said yesterday that the umbrella bank was concerned about the increase in the supply of dollars in the currency market, not the valuation from naira.
Mahmud said at a virtual investor conference: “We don’t really care about the valuation. What worries us is the supply and confidence in the system. “
The local currency hit an all-time high of N 532 per dollar on the parallel market on Monday amid recent CBN actions to channel demand from the unofficial market, where the naira is trading at much lower levels.
Nigeria is grappling with a dollar shortage caused by low oil prices following disruptions related 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 Godwin Emefiele declared Nigeria’s spot naira rate to be overvalued by up to 10 percent, citing the bank’s real effective exchange rate model.
According to Reuters, Mahmud reportedly said the level of the naira would have to adjust according to demand, but market failures had prompted the bank to adopt a controlled float regime.
Nigeria has multiple exchange rates operating in parallel, a system put in place during an oil crash in 2016 as the government sought to avoid a large official devaluation of the naira out of national pride.
Mahmud said the spot rate is the benchmark rate and that he expected several Nigerian exchange rates to converge, a gap that frustrated investors.
At close of business yesterday, the naira was trading at N411 against the dollar in the official spot market, in a range of N407 to N412 where it has been since June.