CBN's multiple forex rate eliminates frivolous demand

The Central Bank of Nigeria (CBN) recently announced that its multiple exchange rate system has successfully eliminated frivolous demands in the system. This statement was made by Babatunde Adama, Head of Trading at Citi Nigeria, during an interview with CNBC Africa to discuss the current state of the fixed income and foreign exchange markets. Adama commended the CBN for its efforts and highlighted some key positive outcomes of the multiple exchange rate system. He mentioned that the CBN has increased its foreign currency sales significantly, with over $2 billion sold in the current month compared to less than $1 billion in previous months. Additionally, the introduction of a new window with more flexibility has helped bring down parallel market rates. These developments indicate that the CBN's policy is moving in the right direction. Adama emphasized the importance of building market confidence and attracting international capital to reduce the central bank's role as the primary liquidity provider. He suggested that increased flexibility in trading and the consolidation of various exchange windows into a single market would further enhance market stability. The focus on investors and exporters in the new window is seen as a positive step towards achieving a unified exchange rate system. Adama explained that while having multiple rates may pose short-term benefits, the ultimate goal should be to harmonize all rates into a single rate. Despite the challenges and complexities involved in transitioning to a unified rate, Adama expressed optimism that the market would eventually move towards a single rate system. When asked about the projected exchange rate in the long term, Adama acknowledged the dynamic nature of exchange rates and the influence of various market factors. He noted that the current highest rates in the multiple windows hover around $375 to $380, significantly lower than previous estimates of $500. Adama highlighted that exchange rates are subject to constant fluctuations based on market conditions and external factors. Overall, the interview with Babatunde Adama shed light on the positive impact of CBN's multiple exchange rate system on the foreign exchange market. While challenges remain in achieving a unified exchange rate, the steps taken by the CBN indicate progress towards a more stable and efficient market.