Economist tasks CBN on foreign exchange intervention to sustain Naira appreciation

An economist, Mr Charles Mordi has urged the Central Bank of Nigeria (CBN) to continue to inject Foreign Exchange (forex) into the market to sustain current appreciation of the Naira

Mordi, a former Director of Research at CBN said this in an interview with the News Agency of Nigeria (NAN) on Thursday in Abuja.

He said that the current near convergence may be artificial because once there was a shortage of supply from the CBN, the market was most likely to respond negatively.

“The problem is that if CBN should withdraw from the market, the appreciation of the Naira will be difficult to sustain because the CBN still remains the major source of supply.

“This is because government remains the major earner of foreign exchange in Nigeria.

“So, except if there is a shift, with a bulk of it coming from the private sector, then the CBN can gradually withdraw without any major catastrophe, with marginal effect.

“But for now, nothing has changed in terms of our structure. So it’s going to take a while before the CBN can take a back bench in the foreign exchange market,’’ he said.

According to Mordi, the ability of CBN to sustain convergence of the foreign exchange rates will depend on the availability of foreign earnings.

“The convergence you are seeing can only be sustained if the supply continues to be there. Now, global oil price in the last couple of days have been falling.

“We just pray that it will not fall to a level where it will have a direct impact on our foreign reserve inflow, although it will take about 90 days before we see the impact of the current low rate.

“If this happens, it will reduce CBN’s ability to continue to supply the market, and because of the nature of the market, it may create negative shocks,” he said.

Mordi advised the CBN to continue intervening in the foreign exchange market in the long term in other to preserve the value of the Naira.

It will be recalled that since February, the CBN have made offers and releases of more than four billion dollars to the inter-bank and Bureau de Change foreign exchange market in its bid to sustain forex supply to different categories of users.

This translated to the appreciation of the Naira from an all time low of about N560 to a dollar, to N360 within two months.

In recent weeks, the CBN introduced the Small and Medium Enterprise Forex window as well as the Investors and Exporters forex window.

It also increased the volume of dollars that a single Bureau de Change could bid for to 40,000 dollars per week from 8,000 dollars.

This had contributed immensely to closing the gap between official and black markets.

The Naira is currently selling at N360 to a dollar at the commercial banks, N361 to a dollar at the Bureau de Change segment and N365 to a dollar at the black market.