The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso has stated that the nation’s currency, the ‘naira’ is undervalued, therefore, a coordinated approach would be applied to expedite genuine price discovery.
Mr. Cardoso stated this while delivering his Keynote Address at the launch of the NESG 2024 Macroeconomic Outlook Report on Wednesday in Abuja.
Recall that the Managing Director/Chief Executive Officer of Financial Derivatives Company Limited, Bismarck Rewane recently disclosed that the naira which hits N1,089.51 against the dollar at the official market, was undervalued by 26.56 percent, pointing at the CBN’s consolidation of all the foreign exchange market segments into the Investors and Exporters (I&E) forex window, renamed as the Nigeria Autonomous Foreign Exchange Market (NAFEM) as the cause.
However, the apex bank governor expressed optimism that the coordinated approach from the bank and the fiscal authority will contribute to a more balanced and stable exchange rate in the near term.
He said, “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.
“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”, he said.
On CBN’s FX initiative, Cardoso said, there was a collaboration 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”, he added.
He explained 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 CBN.
“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 FX 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.
“Upholding the integrity of financial markets is crucial for building confidence. With the completion of an independent forensic review and the subsequent clearance of the backlog of valid FX transactions, we remain steadfast in our commitment to decisively address any infractions and abuses”, he said.
The governor disclosed that the inflationary pressures are expected to decline in 2024 due to the
CBN’s inflation-targeting policy aims to rein in inflation to 21.4 percent.
This, he said, would be aided by improved agricultural productivity and the easing of global supply chain pressures, benefiting businesses by boosting consumer confidence and purchasing power.
He noted that “the CBN’s adoption of the inflation-targeting framework involves clear communication, use of monetary policy instruments, and collaboration with fiscal authorities to achieve price stability, fostering market confidence and positively influencing consumer behaviour.
“The outlook for decreasing inflation in 2024 will have a profound impact on businesses, providing a more predictable cost environment and potentially leading to lowered policy rates, stimulating investment, fueling growth, and creating job opportunities.
“Additionally, the Bank has reverted to the conventional monetary policy approach with a focus on attaining price stability, which fosters sustainable economic growth for Nigeria”, he said.
According to him, the NESG 2024 Report resonates with the recently launched CBN strategic plan for the next five years. The plan provides a clear roadmap for achieving the bank’s mandates anchored on the following themes: Price Stability and Monetary Policy Effectiveness, Robust and Resilient Financial System, Governance, Compliance, and Advisory to Government.
These, Cardoso said, form the pillars around which all the bank’s actions and activities will revolve, enabling it to deliver on its mission “to ensure monetary, price and financial system stability as a catalyst for inclusive growth and sustainable economic development”.
“The work has already started, internally within the Bank and across the banking industry, and we are committed to rebuilding an institution that is trusted and respected and promoting confidence in the economy”, he added.
