Central Bank of Nigeria (CBN) may have taken an extra step towards unifying its multiple exchange rates eventually by devaluing the naira at one of its currency intervention sales, but investor’s confidence remains extremely bad.
“Although it shows that the CBN is gradually starting to come around with the idea of having one exchange rate. This single move however is hardly enough to boost investor’s confidence and lead to a surge in foreign capital inflows”, a South African based money manager states.
The CBN has now devalued the naira on two separate occasions this year amid lower oil prices, a slowdown in foreign portfolio inflows and a fast rising foreign exchange (FX) backing.
First, it moved the official rate from N306 to N360 and has now followed it up by moving the rate at the Special Market Intervention Sales (SMIS) to N380 per US dollar from N360
The CBN governor, Godwin Emefiele, told investors that he planned to merge the multiple rates around the Investors and Exporters window, where the naira is slightly weaker at around N386 per dollar.
“The movement in the SMIS rate is consistent with the CBN’s plan to ensure a convergence of the rates at the I&E window”, notes Tajudeen Ibrahim, head of investment research at Lagos-based Chapel Hill Denham.
By its latest naira devaluation, the CBN is also trying to meet the World Bank’s requirement for the disbursement of a $1.5 billion loan that is partly dependent on Nigeria collapsing its multiple rates.
“Clearly, the CBN moving the rate is in reaction to the World Bank’s threat not to disburse funds to Nigeria unless there is a unification”, a senior banker said.
The CBN governor explained: “What we mean by exchange rate unification is moving towards the NAFEX. NAFEX is our dominant market for the purchase and sale of forex and it is a free market where everybody is free to sell their dollars and those who want to buy are free to buy dollars.
“That means that whether you are a businessman, a bank, CBN and you have dollars, you can bring it to the market to sell and if you want to buy dollars, you can come to the market”.
The World Bank has long encouraged Nigeria to manage its currency rate better to remove the irritation to investors who complained against the multiple rates and the administrative adjustment of the currency by the Apex bank.
Business Day, 06 July 2020
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