The Managing Director of Financial Derivatives Company, Bismarck Rewane, has expressed confidence in the Central Bank of Nigeria’s foreign exchange policies, stating that they are yielding positive results and aligning the naira closer to its fair value.
Rewane expressed his thoughts on the Global Business Report show on Arise TV on Monday.
The naira has been strengthening across the official and parallel markets in recent weeks. It closed Monday’s trading at 1503.63/$ at the Nigerian Foreign Exchange Market Window and 1,500.00/$ at the parallel market.
Rewane explained that a Purchasing Power Parity analysis placed the fair value of the naira at 1,102.15/$, meaning the currency is currently 26.35 per cent undervalued. He noted that while intervening to protect an overvalued currency can distort market forces, supporting an undervalued currency helps correct misalignment.
According to him, the CBN’s interventions are bringing the naira back to its appropriate level.
He said, “What is the fair value of the naira? When you do the PPP analysis of the naira, it comes out at 1,102.15/$ in other words, the naira is 26.35 per cent 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.
“The big picture is are these policies working and are they for the good of the country? In our humble opinion, the policies are working. Why do we say that, number one, the difference between the official and parallel market had dropped to less than one per cent? It was as much as 10, 15, and 20 per cent.
“The market and price discovery is efficient, we are no longer saying Aboki FX and blaming all those shadowy (entities). Three, the balance of trade is now $18.6bn. It is the highest level in a long time.
“The balance of trade is the difference between your exports and your imports. In other words, Nigerians are importing less and exporting more. Why? Because the exchange rate has moved against them, also there are policies to discourage import and encourage exports.”
He added that not only were the policies working but that the market knew that import substitution was profitable.
