Economic Crisis: CBN Battles to Revive Naira as Forex Approaches N1,700/$1

CBN's forex policies are ineffective as the exchange rate gets closer. $1 = N1,700

The naira's value against the US dollar has dropped to an all-time low at the official market, N1,537.96/$1.

The Central Bank has put in place a number of policies intended to stop the currency's devaluation, but this decline has still happened.

Operators have reported that the exchange rate has reached N1650/$1 in the parallel market, where the naira is also traded. They do point out that the real rate may differ, possibly being higher or lower, based on the supply of dollars.

Accordong to Nairametrics; “an importer that he offered to buy $1 million at a rate of N1,700/$1 in an effort to obtain currency. Sadly, he was unable to obtain the dollars, suggesting that there is a significant shortage of the currency.”

CBN policies aren't yet preserving naira? Since the Central Bank started a series of foreign exchange reforms, the exchange rate has significantly declined by 10%.

These changes were intended to loosen demand constraints while simultaneously increasing the foreign exchange supply.

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As of January 31, the official market exchange rate was N1,455/$1, but it declined to close at N1,577.9/$1, in response to a Central Bank directive directing banks to manage their net open positions.

Given that there hasn't been the expected spike in foreign exchange inflows, this sharp depreciation suggests that the market may be doubting the efficacy of the Central Bank's forex policies.

The Central Bank has issued more than six circulars and carried out policy measures targeted at further liberalizing the industry in the last two weeks alone.

A crucial measure that could result in the Naira being freely floated is the shift towards an exchange rate mechanism driven by the market.

Significant modifications were announced in a Central Bank circular. These included lifting limitations on the spread between buy and sell rates in interbank foreign exchange transactions and easing restrictions on the sale of interbank transaction proceeds.