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Godwin Emefiele: Naira is Overvalued by 10%

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Godwin Emefiele: Naira is Overvalued by 10%
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Godwin Emefiele, the governor of the Central Bank of Nigeria has told investors that the Naira is currently overvalued by 10%. There are suggestions that the central bank is planning to further devalue the legal tender again. 

The governor said this on an investor call last week stating that the spot naira rate of 410-412 per dollar would eventually weaken by 5% to 10%. He based his comments on the central bank’s real effective exchange rate (REER) model.

By weakening the naira by 5% to 10%, the CBN is expecting the spot rate of the naira to shift between 430 and 450.

Naira Continues to Decline 

The high exchange rate of naira to the dollar is alarming and this is worrying to investors. Since March last year, the central bank has devalued the national legal tender three times in an attempt to unify the exchange rates.

In May 2021, the central bank allowed the naira’s exchange rate against the US Dollar to drop from 381 to 410 naira per dollar. This devaluation was the third one in less than 18 months. 

Despite all attempts to unify exchange rates, the currency went to as high as 500 naira per dollar as dollar liquidity dropped. This widening gap has created issues even with the World Bank. 

World Bank Calls for Exchange Rate Unification

The World Bank has called for the purification of Nigeria’s multiple exchange rates. The World Bank wants to see “closer parity before the release of a much-needed $1.5 billion budget support loan.”

In addition to the demands from the World Bank, the Central Bank of Nigeria is also under pressure to devalue the national currency as it is affecting businesses that are failing to access the resource via the official channels. This, in turn, leaves the parallel market as their only source for foreign currency. 

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