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The Emir of Kano and former Governor of the Central Bank of Nigeria, Muhammad Sanusi II, has given reasons why the Nigerian currency, naira is currently undervalued.
Emir Sanusi said this in an interview with Daily Trust on his recent visit to Washington DC, fiscal and monetary policy.
He said with the purchasing power parity, nominal exchange rate and the current rate of inflation, the value of naira at 300 is still slightly undervalued.
His words: “While I think the naira is undervalued, certainly if you look at the purchasing power parity, when you look at the nominal exchange rates, when you look at the rate of inflation, it stands to agree that even at 300 the naira will be slightly undervalued”.
“Fundamentally, I think the exchange rate is where it’s supposed to be. What is obviously the problem, is not the fundamentals, it is the managing of the regime, so that people will have the confidence that we are indeed having a flexible exchange regime and also that we are closing the gap between the official and the parallel market rates, and that could only happen when we have liquidity within that segment.
“The Central Bank decided not to sell forex to BDCs but there is no liquidity. What you said is for N470-490 to the dollar might be a very small volume in transactions but it does have the impact of creating the impression that it creates a huge gap. So if we could just provide liquidity to that segment and close that gap it will help a lot.
“But in terms of where the naira is today, there is no need for any further devaluation as far as the fundamentals are concerned but we have to take steps to address confidence”, the Emir said.
Emir Sanusi said this in an interview with Daily Trust on his recent visit to Washington DC, fiscal and monetary policy.
He said with the purchasing power parity, nominal exchange rate and the current rate of inflation, the value of naira at 300 is still slightly undervalued.
His words: “While I think the naira is undervalued, certainly if you look at the purchasing power parity, when you look at the nominal exchange rates, when you look at the rate of inflation, it stands to agree that even at 300 the naira will be slightly undervalued”.
“Fundamentally, I think the exchange rate is where it’s supposed to be. What is obviously the problem, is not the fundamentals, it is the managing of the regime, so that people will have the confidence that we are indeed having a flexible exchange regime and also that we are closing the gap between the official and the parallel market rates, and that could only happen when we have liquidity within that segment.
“The Central Bank decided not to sell forex to BDCs but there is no liquidity. What you said is for N470-490 to the dollar might be a very small volume in transactions but it does have the impact of creating the impression that it creates a huge gap. So if we could just provide liquidity to that segment and close that gap it will help a lot.
“But in terms of where the naira is today, there is no need for any further devaluation as far as the fundamentals are concerned but we have to take steps to address confidence”, the Emir said.
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