NEWS >> Inclusive approach needed for exchange rate stability – Experts

The Nigerian foreign exchange market was positively stunned by a 14% appreciation of the Naira in seven days after an extraordinary CBN intervention of $700m in the spot market.

In continuation of its intervention in the foreign exchange market aimed strengthening the Naira against other international currencies, the CBN, plans to inject another $350 million to the market this week.

The bank says its recent intervention overwhelmed the market’s ability to absorb the injected funds. Despite the placement of about $500 million in the first intervention by the bank shortly after the policy review was announced last week, the market could only absorb $350 million, the bank said. In the folow up placement of about $270 million, only $221million was taken up in the market.

CBN spokesperson, Isaac Okorafor, said the inability of the market to absorb the entire supply of dollars to the market was an indication that the supposed high demand for foreign exchange was artificially induced by speculators to spike the price for selfish reasons.

Following the CBN intervention in the market in the last two weeks, the value of Naira has strengthened significantly, from about N515 to the dollar to about $485 to the dollar in the first week.The value has since been boosted to about N440 to the dollar in the second week.

The Naira had lost over 40% of its value in the last nine months ever since the CBN announced a flexible exchange rate policy but unfortunately operated a managed fixed exchange rate market.

However, analysts at the Financial Derivative Company (FDC) are of the opinion that: “the conclusion that the structural misalignment of the currency was now resolved and that the Naira will only appreciate further is hasty”.

Bismarck Rewane and the FDC Think Tank analyzed the impact of the new forex process on the economy and business at this month’s LBS breakfast club session.

Speaking in the same vain, Uche Uwaleke, Financial Economist with the University of Nassarawa argued that until the country does something about the supply side of the dollar, we will always have a new round to the current crises.

Uwaleke made the remark at the just concluded CBN Finance correspondent seminar in Sokoto last week, while speaking on the link between domestic production, foreign exchange and the economic growth.