- According to him, the CBN’s interventions are bringing the naira back to its appropriate level. “What is the fair value of the naira? When you do the PPP analysis of the naira, it comes out at 1,102.15/$ in other words, the naira is 26.35 per cent undervalued.
- He said Purchasing Power Parity analysis placed the fair value of the naira at 1,102.15/$, meaning the currency is currently 26.35 per cent undervalued.
According to Bismarck Rewane, Managing Director of Financial Derivatives Company (FDC), the recent rebound of the Nigerian Naira (NGN) in the parallel market can be attributed to the Central Bank of Nigeria’s (CBN) foreign exchange (forex) reforms, Eko Hot Blog reports.
Speaking on Global Business Report, Rewane noted that the naira has been steadily appreciating against major international currencies, with the gap between the official and parallel market rates narrowing significantly.
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“It closed Monday’s trading at 1503.63/$ at the Nigerian Foreign Exchange Market Window and 1,500.00/$ at the parallel market”, he added.
He said Purchasing Power Parity analysis placed the fair value of the naira at 1,102.15/$, meaning the currency is currently 26.35 per cent undervalued.
He noted that while intervening to protect an overvalued currency can distort market forces, supporting an undervalued currency helps correct misalignment.
According to him, the CBN’s interventions are bringing the naira back to its appropriate level. “What is the fair value of the naira? When you do the PPP analysis of the naira, it comes out at 1,102.15/$ in other words, the naira is 26.35 per cent undervalued.
If you intervene to protect an overvalued currency, that is bad, but if you intervene to support an undervalued currency, you’re actually bringing the currency back from its misalignment to its alignment.
So that is what the Central Bank of Nigeria is doing and we applaud them. “The big picture is are these policies working and are they for the good of the country? In our humble opinion, the policies are working.
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Why do we say that, number one, the difference between the official and parallel market had dropped to less than one per cent? It was as much as 10, 15, and 20 per cent.
