Rewane shared his insights during an appearance on the Global Business Report on Arise TV on Monday.
In recent weeks, the naira has shown signs of strengthening in both official and parallel markets. On Monday, it concluded trading at 1503.63/$ in the Nigerian Foreign Exchange Market Window and 1,500.00/$ in the parallel market.
He elaborated that a Purchasing Power Parity assessment suggests the fair value of the naira is 1,102.15/$, indicating that the currency is currently undervalued by 26.35 percent. Rewane emphasized that while efforts to support an overvalued currency can disrupt market dynamics, backing an undervalued currency is essential for correcting imbalances.
He concluded that the interventions by the CBN are effectively guiding the naira towards its rightful valuation.
He said, “What is the fair value of the naira? When you do the PPP analysis of the naira, it comes out at 1,102.15/$ in other words, the naira is 26.35 per cent undervalued. If you intervene to protect an overvalued currency, that is bad, but if you intervene to support an undervalued currency, you’re actually bringing the currency back from its misalignment to its alignment. So that is what the Central Bank of Nigeria is doing and we applaud them.
“The big picture is are these policies working and are they for the good of the country? In our humble opinion, the policies are working. Why do we say that, number one, the difference between the official and parallel market had dropped to less than one per cent? It was as much as 10, 15, and 20 per cent.
“The market and price discovery is efficient, we are no longer saying Aboki FX and blaming all those shadowy (entities). Three, the balance of trade is now $18.6bn. It is the highest level in a long time.
“The balance of trade is the difference between your exports and your imports. In other words, Nigerians are importing less and exporting more. Why? Because the exchange rate has moved against them, also there are policies to discourage import and encourage exports.”
He added that not only were the policies working but that the market knew that import substitution was profitable.
The market is now efficient in terms of price discovery, and we are moving away from attributing blame to entities like Aboki FX. Currently, the balance of trade stands at $18.6 billion, marking the highest level seen in quite some time.
The balance of trade reflects the disparity between exports and imports. Essentially, this indicates that Nigeria is importing less while increasing its exports. This shift is largely due to the unfavorable exchange rate for imports, coupled with policies aimed at reducing imports and promoting exports.
Furthermore, he emphasized that these policies are proving effective, and the market recognizes the profitability of import substitution.