The naira weakened some 5.8 percent to N381 per dollar at the official market, Tuesday, as the Central Bank of Nigeria (CBN) took yet another step towards a convergence of its multiple exchange rates.
The official rate which had been at N360/$ since March was quoted at N381/$ at market close on FMDQ, with analysts expecting the CBN to reflect the change on its website tomorrow.
It’s the second time the CBN has devalued the official rate this year following the crash in oil receipts, Nigeria’s major foreign exchange earner. The CBN first devalued the official rate in March when it moved from N306/$, where it had been for over two years, to N360/$.
With the latest move, the CBN has collapsed the official rate with its special market intervention sales (SMIS) rate, bringing the country’s multiple rates to within three.
The SMIS rate was also devalued to N380/$ from N360/$ last Friday.
Unification of the multiple exchange rates is one of the requirements for Nigeria to assess a $2.5 billion World Bank loan and formed part of the promises made to the International Monetary Fund (IMF) before the disbursement of a $3.4 billion facility.
“Oil revenue in naira should get a minor boost,” from the devaluation of the official rate, said Omotola Abimbola, an analyst at Lagos-based Chapel Hill Denham.
The move could add N70 billion to the amount made available to the three tiers of government via the monthly federal accounts allocation.
“Now, CBN has to unshackle the I&E window, and maybe we can put this FX liquidity problem behind us,” Abimbola said.
There has been a strong clamour for adopting a more market-friendly approach to managing Nigeria’s FX market and the latest development comes after the CBN Governor, Godwin Emefiele, told some foreign investors that the desire of the central bank “is to achieve exchange rate unification” around the Nigerian Autonomous Foreign Exchange Market (NAFEX)/ I&E rate.
The I&E rate closed at N386/$ Tuesday.
There are however claims that the I&E rate is being rigged by the CBN as liquidity has long dried up in the market which was created in 2017 by the CBN to meet the dollar needs of investors and exporters.
“There’s no liquidity in the I&E window and that has redirected a lot of demand to the parallel market,” one trader said.
“Transactions of many manufacturers and businesses are now being priced at the parallel market rate,” the person said.
The naira trades much weaker at the parallel market at N460/$.
Emefiele however believes that the parallel market rate is being driven by speculators and illegal dealings and has so far discarded the rate as a measure of the naira’s market value.