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CBN begins rate unification as official rate hits N428/$

The Central Bank of Nigeria (CBN) has began implementation of exchange rate unification policy to narrow the huge premium between the official and parallel market rates, The Nation has learnt. 

The CBN rate sheet shows the naira exchanges at N428.1/$1 at the Investors’ and Exporters (I&E) FX window while blackmarket rate was at N710/$ at the weekend, creating N282/$ premium between both rates.

Managing Director/CEO Financial Derivatives Company Limited, Bismarck Rewane, said the black market rate (N710/$), the International Air Transport Association (IATA)  rate (N438/$) and I&E rate (N428.1/$) were converging.  

He said exchange rate structure, restrictive policies, low sales and revenues, rationing of forex supply and capital flight are some of the key factors responsible for naira crash across different markets.

He disclosed that 12 months ago, top manufacturers were complaining were about limited forex supply, which has now worsened.

“Twelve months ago – forex-bought ratio showed that 25 per cent of forex were bought from the CBN, while 75 per cent came through other sources. Today, CBN accounts for only five per cent of forex sales, while other sources account for 95 per cent,” he said.

According to Rewane, said naira has in the last five years, lost 95 per cent of its value against the dollar due to the above mentioned factors.

Analysts said the making of the Nigerian Autonomous Foreign Exchange Rate (NAFEX) also called the Investors’ and Exporters’ FX Window as the default official rate was a major step by the regulator to unify exchange rates.

CBN Governor, Godwin Emefiele said that Nigeria, like other emerging market countries and countries reliant on oil exports, the decline in crude oil earnings as well as the retreat by foreign portfolio investors significantly affected the supply of foreign exchange into Nigeria.

“With the decline in our foreign exchange earnings and successive exchange rate adjustments, the CBN has continued to implement a demand management framework, which is designed to bolster the production of items that can be produced in Nigeria, and aid conservation of our external reserves,” he said at a bankers’ meeting in Lagos.

Emefiele explained that due to the unprecedented nature of the shock, the apex bank has continued to favour a gradual liberalisation of the foreign exchange market in order to smoothen exchange rate volatility and mitigate the impact which, rapid changes in the exchange rate could have on key macro-economic variables.

This, he said was in line with international best practices in countries where managed float arrangements are in operation.

“At the same time, measures are being taken by the authorities to improve our non-oil exports and other sources of foreign exchange. These measures have helped to prevent a significant decline in our reserves,” he said.

The IMF insisted that restrictions on access to foreign exchange for certain categories of goods, and multiple exchange rates create distortions in both private and public sectors decision making. 

They discourage long-term investment, encourage smuggling and provide avenues for corruption.

Moving forward, the Fund suggested removal of foreign exchange restrictions, and a full exchange rate unification, in line with the authorities’ Economic Recovery and Growth Plan (ERGP), will help keep the parallel market premium low in a more sustained manner.

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