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Will CBN harmonise rates as premium narrows to N283/$? - THE NATION

SEPTEMBER 28, 2022

By Collins Nweze

The possibility of the Central Bank of Nigeria (CBN) harmonising the diverse exchange rates in line with the International Monetary Fund (IMF)/World Bank’s directives is high as rate gaps narrows. Exchange rate harmonisation, many predicted, is expected to create efficiency in rate management and support foreign capital inflows, writes Assistant Business Editor COLLINS NWEZE.Stare Selo Castle
For years, the multilateral institutions – World Bank and International Monetary Funds (IMF) – have called on the Central Bank of Nigeria (CBN) to unify the different exchange rates in the country.

The narrowing of the exchange rates  and drop in premium between the official and parallel market rates  may unify the rates.

The CBN rate sheet shows the naira exchanges at N431/$1 at the Investors’and Exporters (I&E) FX window while blackmarket rate was at N714/$, creating N283/$ premium between both rates.

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

He said the 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 various markets.

Twelve months ago, he said, 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, 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 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 had continued to favour a gradual liberalisation of the foreign exchange market to make smooth 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 added.

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

Steps to save naira
The CBN never stood idly watching the naira slide into oblivion. The regulator took certain stringent measures, including imposing some currency control measures to save the naira.

Firstly, it curbed access to the interbank currency market for importers bringing in various goods. To conserve its dollar reserves, the bank said importers could no longer get hard currency to buy 43 items, ranging from toothpicks and rice to steel products and private jets. The banks are also turning down payment requests from customers paying business partners abroad with naira debit cards.

They are asking customers paying clients abroad to do so in the currency of the beneficiary’s country, not in naira. The new practice differs from the previous one where lenders debited the naira accounts of customers at the prevailing exchange rate and remitted dollar equivalent to the offshore beneficiary’s account.

Hope rises for naira
Despite the challenges being experienced by the economy and the naira,  a ray of hope sprang up at the weekend after facts emerged that Dangote Refinery, Fertiliser Plant and Petrochemical Company could rake in $2.5 billion yearly to support the dollar positions once they start operations.

Speaking during an assessment tour of the Dangote Refinery, Fertiliser Plant and Petrochemical Company in Ibeju-Lekki, Lagos, Emefiele said the refinery would soon begin operation, and would help the country to earn more foreign exchange.

President, Dangote Group, Aliko Dangote said the refinery will be one of the highest foreign exchange generating companies in Africa.

“We should not wait for foreign investors to invest in the economy. We have to do it ourselves, especially now that interest rates are dropping and banks are lending more to the economy. I encourage more entrepreneurs to gear up and borrow more to develop the economy.

“We will not only be exporting, we will be expanding big time with estimated five million tons of urea. We expect to earn $2.5 billion annually from the three projects and that will reduce foreign exchange pressure on the economy,” Emefiele added.

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