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The central bank of Nigeria is concerned about increasing dollar supply on the currency market rather than the naira’s valuation, according to Hassan Mahmud, the bank’s director of monetary policy. On the unofficial or black market, the naira hit a record low of 532 to the dollar on Monday, with dollars becoming scarce following the central bank’s recent steps to channel demand from the unauthorized market, where the naira is trading at considerably lower levels.
“We are not really bothered much about valuation. What we are worried about is the supply side and the confidence in the system,” Mahmud told a virtual investor conference. Nigeria is dealing with currency shortages caused by low oil prices, as a result of interruptions caused by the COVID-19 outbreak. Since March 2020, the central bank has depreciated the currency three times, yet the naira has continued to fall.
In June, Central Bank Governor Godwin Emefiele stated that Nigeria’s spot naira rate was up to 10% overvalued, citing the bank’s real effective exchange rate methodology. The naira’s value is meant to change depending on demand, according to Mahmud, but market failures have forced the bank to establish a managed float regime. Nigeria has many alternative currency rates, a mechanism put in place during the 2016 oil price fall to avoid a significant public devaluation of the naira for national pride.
The spot rate, according to Mahmud, is the reference rate, and he anticipates a convergence of Nigeria’s several currency rates, which has disappointed investors. The naira traded at 411 per dollar on the official spot market on Tuesday, remaining in the range of 407 to 412 naira since June.