Do You Care About Nigeria's Multiple Exchange Rates?
Remember how analysts and finance experts used to mock Nigeria’s multiple exchange rates, comparing to the rainbow colour?
Well, it appears Nigeria is gradually putting this behind.
And this would really make investors and the International Monetary Fund happy as they have long called on Nigeria to merge the multiple exchange rates.
Bloomberg reports that the Central Bank of Nigeria, CBN has weakened the “Nifex” rate at which it sells dollars to most local companies by about 10% since August last year, bringing it closer to the “Nafex” rate used by foreign bond and stock investors.
Also Read: Again, CBN Leaves Interest Rate At 14%
Nafex and Nifex are also converging toward the naira’s black-market value.
“This a first step towards a more unified exchange rate,” Samir Gadio, an Africa analyst at Standard Chartered Plc in London told Bloomberg.
But it’s just a start. The central bank has kept its official rate for the naira at roughly 305 against the dollar -- almost 20% stronger than Nafex -- for more than two years.
It uses this to supply cheap foreign exchange to select companies including fuel importers, as well as government departments.
Analysts including Citigroup Inc. and Renaissance Capital have said the system is opaque and deters foreign investment. They’d prefer a single rate and a freer-floating currency.
While that probably won’t happen for the “foreseeable future,” foreign investors are at least satisfied that the weakening of the naira’s other rates has reduced a shortage of dollars that Nigeria suffered after the 2014 crash in crude prices, according to Gadio.
“At the end of the day, offshore investors will focus more on their ability to repatriate foreign exchange proceeds,” he said.
“On this point, the track record this year looks good, since the central bank provided foreign exchange liquidity to those foreign investors who decided to take profit.”