Rewane backs CBN’s forex policies, says naira nearing fair value

• Published On: 25 February 2025 at 18:40

Bismarck Rewane, the Managing Director of Financial Derivatives Company, has expressed confidence in the Central Bank of Nigeria's foreign exchange policies, claiming that they are producing positive results and bringing the naira closer to its fair value.

Rewane spoke on Arise TV's Global Business Report on Monday about the impact of these policies on market stability.

According to Rewane, a Purchasing Power Parity analysis places the naira at ₦1,102.15/$, indicating a 26.35% undervaluation.

He emphasized that defending an overvalued currency distorts market forces, whereas supporting an undervalued currency helps restore balance.

In recent weeks, the naira has gained strength on both the official and parallel markets. On Monday, the Nigerian Foreign Exchange Market Window closed at ₦1,503.63/$, while the parallel market closed at ₦1,500.00/$.

According to Rewane, the CBN's interventions are restoring the naira to its proper value.

He asked, "What is the fair value of the naira?" The naira's PPP analysis yields 1,102.15/$, indicating that it is 26.35 percent undervalued. If you intervene to protect an overvalued currency, it is bad; if you intervene to support an undervalued currency, you are actually bringing the currency back into alignment. So this is what the Central Bank of Nigeria is doing, and we applaud them.

"The big picture is, are these policies effective and for the good of the country? In our humble opinion, the policies are effective. Why do we say that, number one, the difference between the official and parallel markets has shrunk to less than 1%? It ranged from 10% to 20%.

"The market and price discovery are efficient; we are no longer blaming Aboki FX and other shadowy entities. Three, the trade balance now stands at $18.6 billion. It's the highest level seen in a long time.

"The balance of trade is the difference between your exports and imports. In other words, Nigerians are reducing imports while increasing exports. Why? Because the exchange rate has moved against them, there are policies in place to discourage imports while encouraging exports."

He stated that the policies were effective, and that the market recognized the value of import substitution.

Last week, the Monetary Committee of the Central Bank of Nigeria maintained the benchmark interest rate at 27.50%.

CBN Governor Olayemi Cardoso announced the decision during a press briefing on Thursday, stating that all parameters were unanimously agreed upon as the committee assessed the economic outlook for 2025.

"The committee was unanimous in its decision to maintain all parameters, and thus decided as follows: 1. Keep the MPR at 27.50 percent. 2. Maintain the asymmetric corridor surrounding the MPR at +500/-100 basis points.

"3. Maintain the Cash Reserve Ratio of Deposit Money Banks at 50.00 percent and Merchant Banks at 16%. 4. Maintain the liquidity ratio at 30.00 percent," Cardoso stated.