Understanding Naira’s Undervaluation: Insights from Olayemi Cardoso.
In a recent statement at the Monetary Policy Committee Meeting on February 27, 2024, Olayemi Cardoso, the Central Bank Governor, shed light on the undervaluation of the Nigerian Naira, attributing it to various “distortions” caused by unethical practices within the market.
Yemi Cardoso emphasized that these distortions are currently under investigation, with plans to hold accountable those responsible, aiming to deter such behavior in the future.
He elaborated on the challenges faced in ensuring the effective functioning of the market, particularly highlighting manipulative activities as a significant distortion impacting the exchange rate.
Recent fluctuations in the exchange rate, notably a drop to as low as N1800/$1 in February, have raised concerns. However, the rate has since stabilized within the range of N1600 – N1700 per dollar.
Government officials have repeatedly pointed out the artificial nature of the exchange rate, attributing the rapid depreciation of the Naira to speculative actions.
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In a bid to address these issues, the National Security Adviser’s Office, in collaboration with the Central Bank of Nigeria, has initiated joint efforts to combat forex speculation and ensure economic stability. This initiative involves coordinated actions with law enforcement agencies such as the Nigeria Police Force, the Economic and Financial Crimes Commission, the Nigeria Customs Service, and the Nigeria Financial Intelligence Unit.
This isn’t the first time the Central Bank has taken measures against speculators. Last August, former acting governor Fola Shonubi warned speculators of potential losses, hinting at upcoming policies aimed at stabilizing exchange rates.
While the specifics of these policies remain undisclosed, the Central Bank’s efforts to bridge the gap between official and black market rates have been ongoing. Last August, the black market rate stood at around N950/$1, indicating a significant disparity from official rates.
