Acting CBN Governor Fola Shonubi admitted on Tuesday that supply-demand imbalances are fueling the current volatility in Nigerian exchange rates.
In a press conference after the Monetary Policy Committee meeting, Shonubi stated that the Central Bank of Nigeria (CBN) has no plans to unify rates, but instead focuses on fostering a more effective and efficient market.
Reflecting on today’s Monetary Policy Committee meeting, Shonubi said:
- “We are not trying to unify any rates. We think we need to encourage the market to be more efficient and effective, and that takes a little bit of time.”
He cited the disparity between supply and demand and market developments as driving forces behind the current volatility in exchange rates.
The acting governor acknowledged the prevailing volatility, which he says stems from pent-up demand outpacing current supply.
- “And also the reality that there is pent-up demand for which the current supply may not be enough,” Shonubi said.
However, he remains optimistic that as this demand is met, we will see a more orderly market emerge.
Shonubi also called for a redefinition of the Import and Export (I&E) window, which he sees as more than just an exchange point for imports and exports.
- “We also need to stop calling it I&E because it is so much more than I&E to us,” he said,
- “It is a market where anyone and everyone through authorized institutions can participate.”
Despite the current instability, the CBN interim governor predicts a normalization of volatility, and the Central Bank will play a key role in achieving this stability.
- “CBN’s role is to intervene and keep the market at a fairly stable level. We have our opinion on what that level is,” Shonubi said.
He also highlighted the CBN’s intervention strategy in the face of volatility, stating:
- “As the market continues to swing around that level. If there is a need for us to intervene either by buying or selling, that is the role of the Central Bank”.
Shonubi assured that the CBN has already initiated this type of intervention and will persist in this role, to guide the market towards the levels that the bank deems appropriate.
He concluded by expressing confidence in the future moderation of market volatility. “These volatile times are expected and we believe they should moderate further down the line.”
With these revelations, CBN appears to be reassuring the market by giving a reassuring signal to market participants about its commitment to fostering a more efficient and stable market, even amid ongoing supply and demand challenges and volatility in the nation’s economy.