Nigeria’s central bank is poised to shake up the currency markets with imminent measures, as disclosed by Acting Governor Folashodun Shonubi after his meeting with President Bola Tinubu. Discussions centred on strategies to enhance dollar liquidity within the official market.
The backdrop to Shonubi’s meeting is the central bank’s recent announcement of a substantial $19 billion commitment to derivatives in 2022, an amount almost equivalent to the nation’s reserves.
In an effort to bolster its reserves and counter the depreciation of its currency, Nigeria’s largest economy has been exploring solutions. This comes after the currency experienced a dramatic decline in value on the black market following the easing of trading restrictions on the official market a couple of months ago.
Under the tenure of suspended Governor Godwin Emefiele, the central bank had been actively intervening to support the naira and had implemented multiple controls to artificially maintain its strength.
Tinubu, who voiced concerns about Emefiele’s currency management during his inauguration in May, took decisive action by suspending the central bank governor on June 9. Subsequently, trading restrictions on the naira were lifted, leading to a substantial depreciation of over a third.
“We are embarking on initiatives that will have a significant impact on the market in a matter of days,” Shonubi conveyed to reporters in Abuja.
Although Shonubi refrained from outlining the exact nature of these measures, he indicated that President Tinubu was alarmed by the black market rate’s influence on local reference and its potential inflationary repercussions.
On the black market, the naira’s value has plunged to successive record lows due to scarcities of dollars on the official market, where the currency’s depreciation has also been evident since the devaluation.
On Monday, the black market quoted the naira at 945 per dollar, hovering close to the previous week’s record low of 960. Throughout this month, the official market has seen the naira trading broadly between 700 and 804 naira per dollar.
Olawale Edun, Tinubu’s monetary policy adviser and the anticipated future finance minister of Nigeria, has argued that the weaker black market rate lacks support from economic fundamentals. He asserts that a more suitable exchange rate would be around 700 naira to the dollar.
