Bismarck Rewane, Managing Director of Financial Derivatives Company, has expressed confidence in the Central Bank of Nigeria’s (CBN) foreign exchange policies, stating that they are yielding positive results and aligning the naira closer to its fair value.
Rewane shared his thoughts on Arise TV’s Global Business Report show on Monday.
The naira has been gaining strength across official and parallel markets in recent weeks, closing Monday’s trading at 1503.63/$ at the Nigerian Foreign Exchange Market Window and 1,500.00/$ at the parallel market. According to Rewane, the naira’s fair value is 1,102.15/$, based on a Purchasing Power Parity analysis, indicating that the currency is currently 26.35% undervalued.
Rewane noted that supporting an undervalued currency helps correct misalignment, whereas intervening to protect an overvalued currency can distort market forces. He praised the CBN’s interventions, saying they are bringing the naira back to its appropriate level. “What is the fair value of the naira? When you do the PPP analysis of the naira, it comes out at 1,102.15/$, in other words, the naira is 26.35% undervalued. If you intervene to protect an overvalued currency, that is bad, but if you intervene to support an undervalued currency, you’re actually bringing the currency back from its misalignment to its alignment. So that is what the Central Bank of Nigeria is doing and we applaud them,” Rewane said.
Rewane further emphasized that the CBN’s policies are working. The difference between the official and parallel markets has dropped to less than 1%, from 10-20% previously. The market is also no longer reliant on unofficial sources like Aboki FX. Additionally, the balance of trade has reached $18.6 billion, the highest level in a long time, indicating that Nigerians are importing less and exporting more. Rewane attributed this improvement to the exchange rate moving against imports and policies discouraging importation and encouraging exports. He concluded that not only are the policies working, but the market also recognizes the profitability of import substitution.
