The Federal Government, in apparent contradiction to its earlier stance on floating the naira, persuaded the Central Bank of Nigeria (CBN) to allow the currency to reflect market realities yesterday.
The exchange rate is artificially low, according to Vice President Yemi Osinbajo, and this is discouraging investors from bringing foreign exchange into the country. He also stated that the current practice, which sets the official rate at N410, is not a realistic reflection of the country’s economic fortunes.
Osinbajo spoke at the Presidential Villa in Abuja yesterday to kick off a two-day Mid-term Ministerial Performance Review retreat.
“Oil price at one point fell even below production costs; about $10 a barrel and then finally settled at about $45 a barrel during the second quarter of 2020. The official rate of the naira was devalued from N305 to the dollar, to N380 to the dollar. This was in the third quarter of 2020.
“We can’t get new dollars into the system, where the exchange rate is artificially low, and everyone knows by how much our reserves can grow. So, I’m convinced that we need to rethink the demand management strategy currently being adopted by the CBN, and that is just my view,” he said.
Both the IMF and the World Bank have urged the government to provide a clearer and more predictable foreign exchange management system in their Article IV reports.
The naira has continued to weaken as demand outweighs supply, despite the CBN’s gradual weakening of the official rate in an apparent move to allow it to converge with the NAFEX rate, a market-determined rate for investors and exporters.
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