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More reasons why CBN can’t achieve rates convergence emerge

The sustained struggle by the Central Bank of Nigeria (CBN) to drive exchange rate convergence in the face of liquidity squeeze and forex crisis is now close to one year without the expected result.

There were signals that the target would have been met some time in August and September, but that never happened rather naira continued on steady drop in value till the end of last week with marginal momentary gains.

Whereas money market observers trace the failure to serious drop in real sector performance since the recessionary period up to the exit, they are convinced that no amount of momentary dollar injection by the apex bank will do the magic of rates convergence, but total return of steady productivity by the manufacturing sector and increase in economic diversification.

Throughout last week, the nation’s currency was on depreciation spree against the US dollar at all segment of the foreign exchange market even though speculative activities are being contained by consistent interventions of the CBN.

For example, naira closed at N360.40k per dollar on Thursday, losing 0.003 percent compared to N360.39k traded on Tuesday at the investors and exporters forex window, data from FMDQ indicated.

It also weakened at the official inter-bank market by 0.02 percent to close at N305.75k on Thursday from N305.70k quoted the previous day.

At the Nigerian Foreign Exchange Fixing (NiFEX) window, the local currency felled by 0.07 percent to close at N329.50k per dollar on Wednesday, as against N329.25k/$ traded on Tuesday.

The CBN continued it intervention this week, boosting the foreign exchange market with the sum of $195 million. Figures obtained from the Bank indicate that the CBN offered $100 million to authorized dealers in the wholesale segment of the market, while the Small and Medium Enterprises (SMEs) segment received the sum of $50 million. Those requiring foreign exchange for invisibles such as tuition fees, medical payments and Basic Travel Allowance (BTA), among others, were allocated the sum of $45 million.