Nigeria reduces naira to a single exchange rate | Business and Economic News

Nigeria adopted a multi-rate exchange rate regime to avoid a complete devaluation of the naira, but the system sparked criticism from the IMF.

The Nigerian central bank is down 7.6% against the dollar, as Africa’s largest oil-producing authorities target its single currency exchange rate system.

The Abuja headquarters in Abuja, Nigeria, replaced the fixed rate of 379 naira instead of the dollar used for official transactions with a more flexible nafex, also known as the investor and exporter exchange rate, averaging 410.25 naira per dollar this year. data on its website on Tuesday.

“We knew we were no longer calling for an official CBN rate for transactions,” Governor Godwin Emefiele told reporters at a monetary policy meeting on Tuesday. “We are still managing to float, we are controlling the market and we are watching what is happening to us to ensure that the right things are happening for the good of the Nigerian economy.”

The bank maintained the interest rate at 11.5% according to the average estimate from the Bloomberg survey.

“The official consolidation of these rates is a beneficial development, as the fragmented exchange market has been a source of confusion and arbitrage,” Neville Mandimika, Johannesburg economist at Rand Merchant Bank, said in an email.

Nigeria adopted a multi-exchange rate regime to prevent the full devaluation of the naira by maintaining a stronger rate for official transactions and maintaining a weaker exchange rate for non-government transactions. This money management system was criticized by the International Monetary Fund, and the World Bank delayed a $ 1.5 billion loan to push for further foreign exchange reforms.

Nafex, which acts as a one-time rate, was introduced in 2017 to improve the liquidity of the dollar and to boost the income of foreign investors who were leaving the country after the 2016 economic crisis. The West African nation experienced an even more severe shortage of hard currency when the Covid-19 pandemic caused oil prices to fall last year, forcing the local unit to devalue twice.

Although gross accounts for less than 10% of the country’s gross domestic product, it accounts for almost all of the foreign exchange gains and half of government revenue.

“The key thing in the market now is to allow investors and exporters greater flexibility in window rate pricing to completely reduce the spread between Nafex and the parallel market,” Omotola Abimbola told Chapel Hill analysts over the phone.

The recent move by central banks is expected to improve confidence in policy making, but the recovery of portfolio income will not be immediate as investors expect more dollar liquidity at Simon EF and Mohamed Abu Basha in Cairo’s EFG Hermes.