IMF defends CBN on foreign exchange unification
…IMF to support Nigeria as naira appreciates to N663/$
By Sodiq Adelakun
The International Monetary Bank (IMF) has backed the Central Bank of Nigeria (CBN) in unifying its foreign exchange Market.
Recall that CBN announced operational changes to the foreign exchange market on Wednesday.
The apex Bank had directed Deposit Money Banks to remove the rate cap on the naira at the official Investors’ and Exporters’ Windows of the foreign exchange market.
According to data from CBN on Wednesday, the development had led to the depreciation of the naira against the US dollar, which exchanged at 588.5.
The naira traded at 663.04/dollar at the close of business on Friday after a free fall following the Central Bank of Nigeria’s floating of the national currency against the dollar and other global currencies.
This means that the currency appreciated by about 5.9 per cent within 24 hours from the N702.19/dollar recorded at the close of business on Thursday.
According to data from the FMDQ Securities Exchange, the naira hit N664.04/dollar at the close of trading at the I&E Window on Wednesday and N702.19/dollar on Thursday after the CBN directed Deposit Money Banks to remove the rate cap on the naira at the official Investors’ and Exporters’ Windows of the foreign exchange market.
The CBN’s decision to float the currency was hailed by the organised private sector and economists who said the move would unify the country’s multiple exchange rates and boost the FX market.
The development implies that buyers and sellers of foreign currency in the official FX markets are now allowed to quote rates they find comfortable in the FX market, as against the previous practice where rates were dictated by the CBN.
While the official rate appreciated, there was depreciation on the parallel market, which opened at N750/dollar and closed at N760/dollar on Friday.
However, in a recent projection, the global investment bank Morgan Stanley, stated that the naira is expected to appreciate at the parallel market rate.
The bank stated this in a publication titled Nigeria Sovereign Credit Strategy ‘No Longer Pumped.’
The report suggests that as more flows are redirected through formal banking channels, the unit will experience appreciation in the near term, leading to a convergence between the I&E rate and the parallel market rate.
Also, JP Morgan, in a commentary, said that the official naira exchange rate to the US dollar would steady in the months ahead.
The bank views the recent policy announcements as positive surprises, supporting a constructive view on Nigeria’s sovereign credit.
However, the multinational financial services firm expects the local currency to jump to at least the rate on the black market following initial pressure from a monetary policy reset.
In a statement on Friday, the Resident Representative for Nigeria of the International Monetary Fund, Ari Aisen, expressed the organisation’s support for the unified exchange rate.
He also assured of the IMF’s support in implementing foreign exchange reforms in the country.
The statement read, “The Fund greatly welcomes the authorities’ decision to introduce a unified market-reflective exchange rate regime in line with our long-standing recommendations. We stand ready to support the new administration in its implementation of FX reforms.”
It was gathered that despite unifying exchange rates, the CBN has said that the status quo remains on the 43 non-eligible items banned from the forex market introduced under the suspended Governor, Godwin Emefiele.
Recall that Nigerians imported not less than nine items worth N18.12 trillion from the forex ban list of the CBN between 2016 and 2022.
According to an analysis of Nigerian Foreign Trade reports of the National Bureau of Statistics from 2016 to 2022, items such as crude palm oil, vegetable products, animal products, meat, vegetable fats and oil, steel products, rubber, plastic, clothes, and textiles were imported from various countries.
