The Central Bank Governor, Olayemi Cardoso has stated that he believes the naira is undervalued largely because of “distortions” emanating from bad behavior.
He stated this while responding to questions at the Monetary Policy Committee Meeting held on February 27, 2024.
He also confirmed that investigations are ongoing on the “distortions” and people held culpably will “face the music” as a deterrence.
- According to Cardoso “to the extent that a market is not functioning effectively and is distortionary in outcomes…it certainly cannot be what it is”
- He also went on to explain that is why he said that it was a challenge to ensure that the apex bank removes those distortions.
- He also mentioned that some of the distortions are the manipulations taking place referring to it as a “huge distortion.”
The exchange rate between the naira and the dollar fell to as low as N1800/$1 earlier in February but has since settled within the N1600 – N1700 band.
Government officials have often cited the current exchange rate as artificial believing that the rapid depreciation of the naira was largely due to the actions of speculators.
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What you should know
Last week, Nairametrics reported that the National Security Adviser’s Office, led by Nuhu Ribadu, in collaboration with the Central Bank of Nigeria (CBN), initiated a joint effort to combat forex speculation and tackle the issues affecting the country’s economic stability.
- In the statement released, by a spokesperson for Ribadu’s office, Zakari Mijinyawa, the partnership is set to include coordinated actions with leading law enforcement agencies such as the Nigeria Police Force (NPF), the Economic and Financial Crimes Commission (EFCC), the Nigeria Customs Service (NCS), and the Nigeria Financial Intelligence Unit (NFIU).
- This is not the first time the central bank has warned speculators and accused them of the depreciation of the naira.
- Last August, the former acting governor of the Central Bank of Nigeria, CBN, Fola Shonubi warned speculators of potential losses as they implement a new policy to stabilize the exchange rate.
- According to him acting governor, the apex bank has come up with a yet-to-be-announced policy that will wipe out the disparities between the official and black market rates.
- It is unclear if it is some of the recent policies of the apex bank that he was referring to. The exchange rate was around N950/$1 on the black market last August.