Nigerian vice president urges central bank to review foreign exchange management strategy Reuters

© Reuters. File photo: The Nigerian Naira banknote appears in the picture illustration on September 10, 2018. The picture was taken on September 10, 2018. REUTERS/Afolabi Sotunde/Illustration/File Photo

Felix Onua

Abuja (Reuters)-The Central Bank of Nigeria needs to review its foreign exchange management strategy and ensure that the Naira’s valuation reflects market realities, Vice President Jemyo Simbajo said on Monday.

Nigeria has multiple exchange rates operating in parallel, and the system was implemented during the 2016 oil price crash because the government tried to avoid a large official devaluation of the naira out of national pride.

Osinbajo urged the central bank to reconsider its demand management policy, which was used to restrict imports to manage currency pressures.

“I think we need to adjust interest rates to reflect market conditions as much as possible. This is the only way to improve (USD) supply,” said the vice president.

He spoke at the mid-term retreat of government ministers chaired by President Mohammed Buhari.

Osinbajo stated that since June, the Naira has traded at 411 naira against the U.S. dollar on the official market, which is supported by the central bank, while the trading price on the black market is 565 naira, where trading is more free.

He added: “We cannot allow the new U.S. dollar to enter a system where the exchange rate is artificially depressed.”

A central bank official said last month that the central bank is worried about increasing the supply of dollars in the money market, rather than the valuation of the naira, adding that the currency level is expected to be adjusted according to demand. He said that market failure caused the bank to adopt a managed floating system.

Nigeria has been struggling with dollar shortages caused by low oil prices, major export products, and COVID-19-related disruptions. Since March last year, the central bank has devalued the currency three times, but the naira has continued to weaken.

Since the central bank adopted a series of restrictions in the currency market in July to prohibit the sale of U.S. dollars to foreign exchange office operators, the local currency has hit a new low on the black market.

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