CBN allows Naira weaken as official rate hits N419

Nigeria’s Central Bank allowed the Naira weaken to a record low against the dollar on the official market on Friday, according to traders, who said this could be a move to unify multiple exchange rates.
Having traded within a band of 380 and 381 to the dollar since July last year, the naira hit a record low of 419.75 against the dollar on Friday.
It then closed at 411.25 — the last closing rate for the Naira on the over-the-counter spot market .
On its website, the CBN also removed its official exchange rate of N379/$1, further bolstering speculations that the CBN wants to make NAFEX rate the default reference exchange rate for official and legitimate transactions.
However, the move further weakened the Naira on the black market by 0.2 percent as buying and selling hit the N480-N484 range.
“What the central bank is saying is that the (OTC) spot rate will be the official rate because that’s where the largest volumes trade,” one currency trader at a major Nigerian bank told Reuters.
Nigeria operates multiple currency regimes, which frustrate businesses and have prompted calls from the World Bank for the rates to be unified to attract investment.
Rising dollar demand has put pressure on the naira as providers of foreign exchange, such as offshore investors, exited after the COVID-19 pandemic triggered a fall in global oil prices.
Central Bank Governor Godwin Emefiele in February said the currency was trading at 410 naira on the official market while the government has been using that rate for its business as it tries to boost earnings from crude sales, its main export.
The World Bank has linked approval of a $1.5 billion budget support loan to currency reforms.
The central bank had been trying to unify the rates and boost the dollar supply through direct interventions.
It revised the futures rate on the naira upwards last month to ease pressure on the currency after quoting the 150-day futures contract at 435.81 naira, in its first dollar sales to foreign investors this year.
The bank is due to hold its interest rate setting meeting later this month with economic data on inflation and first quarter growth figures expected from next week.
It has kept rates on hold to support the economy hobbles by lower oil prices and impact of COVID-19 pandemic but dollar shortages have been contributing to rising inflation, a key source of concern for the central bank.
Meanwhile, the Central Bank of Nigeria (CBN) has removed the official exchange rate of N379 to a dollar from its website.
The decision was taken because exchange rates change daily and nobody uses the rate on CBN website.
This implies that the importer and exporter window (I&E) is now the default reference exchange rate for official transactions in the country.
The I&E FX window is the market trading segment for investors, exporters and end-users that allows for FX trades to be made at exchange rates determined based on prevailing market circumstances.
The window was introduced in 2017 by the CBN to improve foreign exchange market mechanisms, deepen market liquidity, and ensure prompt execution and settlement of all fx transactions.
Nigeria currently has multiple exchange windows. This has caused lack of clarity for investors who are worried about currency risk.
The World Bank has also urged the government to unify its various windows before the $1.5 billion budget support loan to Nigeria is disbursed.
The CBN has been trying to unify the rates and boost the dollar supply through direct interventions. It recently extended an incentive offer last week to recipients of dollar remittances to try to encourage more inflows from the Nigerian diaspora.
In March, Zainab Ahmed, minister of finance, budget and national planning, said Nigeria had moved into a flexible exchange rate by adopting the Nigerian Autonomous Foreign Exchange (NAFEX) rate as the new official rate for government transactions.
“Within the government and the central bank, there is only one official rate, and that’s the NAFEX rate,” Ahmed had said. A claim Godwin Emefiele, governor of the CBN, refuted.
Commenting on the development, Ayodeji Ebo, the head of retail investment at Chapel Hill Denham, said, “removal may be to shift focus to the investors & exporters FX window which has also been the reference rate for the government in 2021.”
“This step further reinforces the adoption of the I&E window as this will reduce the controversy on the reference rate to use for transactions,” he said.
On Friday, the naira inches up 0.02 per cent to trade $410.40 midday at the Investors and Exporters FX Window (I&E FX Window).