Nigeria Will Continue to Manage the Naira, Central Bank Says - BLOOMBERG
‘Managed float’ reduces impact of FX volatility: Emefiele
Country has had multiple exchange rates for more than 2 years
Nigeria’s central bank said it will continue to manage the value of the naira, further dashing hopes that it will move away from a system of multiple exchange rates.
“We will continue to operate a managed float exchange-rate regime in order to reduce the impact which continuous volatility in the exchange rate could have on our economy,” Governor Godwin Emefiele told reporters Monday in the capital, Abuja, while outlining his agenda for the next five years.
This comes after the central bank two weeks ago quashed speculation that it has stopped pegging an official naira rate -- meant for government bodies and fuel importers -- at a level about 20% stronger than the market price.
Since the introduction of the I&E FX window, also known as the importers and exporters window, in 2017 to attract capital inflows by offering investors a weaker and market-determined naira rate, Nigeria has had multiple exchange rates. The International Monetary Fund has been one of the critics of this system, saying the absence of a single value for the currency creates confusion and deters foreign investment.
While the budget and certain official transactions are based on the official exchange rate of 306 naira per dollar, most non-government transactions take place at the market-determined rate of about 360 per dollar, which has been little changed for the last two years.
“Multiple exchange rates encourage illegal round-tripping, and require significant costly administration from the CBN and the banks to implement,” Andrew S. Nevin, PwC LLP’s chief economist for Nigeria, said in an emailed response to questions. “The current regime confuses foreign investors.”
The central bank has reserves of $45 billion which would help it sustain its weekly interventions in the foreign-exchange market to maintain a stronger naira. This policy is backed by President Muhammadu Buhari who reappointed Emefiele last month after he was re-elected.
Emefiele said on Monday the central bank’s policies helped to reduce inflation, ensured stability in the exchange rate and increase in the country’s external reserves. The bank sees economic growth, which was at 1.9% in 2018, accelerating to double digits in the next five years, he said.
The Monetary Policy Committee cut its benchmark interest rate in March for the first time since 2015 to help boost the economy. It held the rate at 13.5% last month.
“At a time when growth is weak, the primacy given to naira stability means that Nigeria is still hindered from any excessive loosening of policy,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank Plc.