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CBN fuels single exchange-rate window speculation

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CBN fuels single exchange-rate window speculation

 

A sudden alteration the Central Bank of Nigeria (CBN) made on the home page of its website has sparked speculation in financial circles that the apex bank may be finally moving towards a single exchange-rate window.
New Telegraph’s findings show that in the section of the home page of its website where, until last week, it used to publish the naira’s official exchange rate as N305/$, CBN has replaced this with: “The naira exchange rate is market-determined.’’
CBN has kept its official rate for naira at roughly 305 against the dollar — almost 20 per cent stronger than the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX)- rate used by foreign bond and stock investors- for about three years. It uses this to supply cheap foreign exchange to companies in key sectors of the economy, including fuel importers, as well as government departments.

Analysts, including Citigroup Inc. and Renaissance Capital, have called for a single rate and a freer-floating currency.

But CBN has retained the N305 per dollar official exchange rate to shield naira from market fluctuations.
However, in August 2017, the regulator weakened the Nigerian Foreign Exchange Rate Fixing (NIFEX) – the rate at which it sells dollars to most local companies – by about 10 percent, bringing it closer to the NAFEX. As at then, both NIFEX and NAFEX were already converging toward the naira’s black-market value of N360/$.

A source at the Apex Bank defended the decision to stop publishing the official exchange rate, arguing that the multiple exchange rates had already converged.

According to Bloomberg, a move toward a market-determined exchange rate will be good news to investors, who have long accused the government of some level of capital controls and who have criticized the system of multiple exchange rates.
The news agency noted that the head of the Nigerian Investment Promotion Commission, Yewande Sadiku, said last month that the CBN was in talks with other agencies to move to a single rate for the naira.

It quoted a currency analyst at Ecobank Transnational Incorporated (ETI), Mr. Kunle Ezun, as saying that:“Putting that on the website means the central bank is gradually moving towards a single exchange-rate window.”
“It is making the exchange rate more liquid to attract more inflows,” he added.

 

Director of the Africa department at the International Monetary Fund (IMF), Abebe Aemro Selassie, had said in May last year that Nigeria needed to move to a single unified foreign-exchange rate.
He said then that: “They have reduced the gap between the parallel market and the official market significantly, so that’s a movement in the right direction, but there are still several foreign-exchange rates. Even though the gap is narrower, the country would strongly benefit from having a unified and liquid single foreign-exchange market.”

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