The Nigerian forex market was positively stunned by a 14% appreciation of the naira in 7 days after an extraordinary CBN intervention of $700m in the spot market. The naira had lost over 40% of its value in the last 9 months ever since the CBN announced a flexible exchange rate policy but unfortunately operated a managed fixed exchange rate market.
Some analysts had hastily jumped to the conclusion that the structural misalignment of the currency was now resolved and that the naira will only appreciate further.
We are of the view that the crisis of liquidity and confidence needs more than spasmodic quantities of dollar supply to restore confidence in the market.
Without a transparent supply process and a commitment of funding for both tradables (imports) and invisibles (services) the naira will continue to oscillate.
The crisis of supply can be temporarily addressed but the confidence deficit needs a much more comprehensive approach to achieve a level of exchange rate stability.
At this month’s LBS breakfast club session, Bismarck Rewane and the FDC Think Tank analyse the impact of the new forex process on the economy and business.