CBN working on price discovery for local currency, says Naira currently undervalued

The governor of the Central Bank of Nigeria (CBN), Dr Olayemi Cardoso, has said the apex bank will be working on price discovery for the nation’s local currency as it believes that the naira is currently undervalued.

Cardoso said the CBN is committed to not only clearing the foreign exchange backlogs but will decisively deal with any abuse of the process by anyone.

Cardoso made this known while delivering his keynote address at the Launch of the Nigerian Economic Summit Group (NESG) 2024 Macroeconomic Outlook Report.

Currently, the value of the naira had continued to plummet at bot official and parallel ends of the market with the currency trading as low as N1,330 to the dollar at the Nigeria Autonomous Foreign Exchange (NAFEX) window while it sells on the streets at N1,365 to the dollar.

The CBN governor, in his address, said: “We believe that the naira is currently undervalued and, coupled with coordinated measures on the fiscal side, we will expedite genuine price discovery in the near term. This coordinated approach will contribute to a more balanced and stable exchange rate.”

The Apex Bank boss explained that as part of measures to increase foreign exchange inflow and ensure stability of price at the forex market, it is collaborating “with the Ministry of Finance and the NNPCL to ensure that all FX inflows are returned to the Central Bank. This coordinated effort will greatly enhance the Bank’s FX flows and contribute to the accretion of reserves.”

The CBN governor pointed out that the expected stability in the foreign exchange market for 2024 can be attributed to the reduction in petroleum product imports and the recent implementation of a market-determined exchange rate policy by the apex bank.

“This reform is designed to streamline and unify multiple exchange rates, fostering transparency and reducing opportunities for arbitrage. The resulting consistent and stable exchange rate will not only boost investor confidence but also attract foreign investment, elevating Nigeria’s appeal to global investors.

“We are implementing a comprehensive strategy to improve liquidity in our forex markets in the short, medium, and long term. Our focus is on addressing fundamental issues that have hindered the effective operation of our markets over the years,” he added.

He affirmed that upholding the integrity of financial markets remains crucial for building confidence, adding “with the completion of an independent forensic review and the subsequent clearance of the backlog of valid forex transactions, we remain steadfast in our commitment to decisively address any infractions and abuses.

“In our efforts to stabilize the exchange rate, it is imperative that we prioritize transparency and create a market environment that enables the fair determination of exchange rates, ensuring stability for businesses and individuals alike.”