What's the fair value of the naira?

The Governor of the Central Bank of Nigeria recently shared expectations that the country's inflation would slow down to 21.4 per cent. He also highlighted that the Naira is currently undervalued and efforts are underway to facilitate genuine price discovery in the near term. This raises the question - what truly is the fair value of the Naira? To delve deeper into this topic, Muda Yusuf, Director at the Centre for the Promotion of Private Enterprises, joined CNBC Africa for a discussion. Yusuf expressed his opinions on the fair value of the Naira, pointing out the dynamic nature of economic fundamentals. He suggested that considering the current economic landscape, the fair value of the Naira could lie between N900 to N8000 Naira to the dollar. This estimation takes into account steps taken by the Central Bank of Nigeria (CBN) to clear backlogs and boost confidence in the market. Yusuf emphasized the potential impact of reduced pressure from the importation of petroleum products and improved domestic refining. He also highlighted the significant drop in ways and means financing of the government, indicating a positive outlook for the currency. The discussion further touched on the efforts to expedite price discovery in the near term. Yusuf stressed the importance of correcting market distortions, particularly speculative activities influencing foreign exchange demand. He expressed optimism about a possible deceleration in inflation leading to increased confidence in the Naira. Additionally, collaboration between the CBN, Ministry of Finance, and NNPC, coupled with improved fiscal space, is expected to enhance the currency's outlook. The conversation shifted to the need for rate unification, addressing the existing disparity between official and parallel market rates. Yusuf cautioned against solely benchmarking the currency against parallel market rates, citing non-fundamental factors like speculative activities and corruption. He underscored the significance of enhancing dollar earnings and capacity to address currency challenges. The discussion concluded with insights on the CBN's efforts to channel FX inflows back to the central bank. Yusuf highlighted ongoing reforms in the foreign exchange market aimed at achieving a market-driven rate and encouraging forex inflows. Measures to combat criminality in the oil sector and the implementation of the Petroleum Industry Act were mentioned as essential components to bolster the currency's fundamentals. Amidst these developments, uncertainties and complexities persist in Nigeria's currency landscape, requiring a multifaceted approach to enhance stability and growth.