CBN confirms N410.25K/$1, retains monetary policy rates at 11.5 percent

*The Central Bank of Nigeria urges the government to intensify efforts at tackling the widespread insecurity of lives and property to successfully tackle inflation in the country

*Analysts say the Bank’s move is expected to improve confidence in policy making

Isola Moses | ConsumerConnect

In a move closer to rate convergence, or a single exchange-rate system in the country’s economy, the Central Bank of Nigeria (CBN) has replaced the fixed rate of N379 to a US Dollar used for official transactions with the more flexible Nafex.

ConsumerConnect reports the data on the Bankers’ Bank Web site Tuesday, May 25 indicates the CBN confirms the adoption of Nafex, also known as the investors and exporters’ exchange rate that has averaged N410.25 per Dollar this year.

The measure towards the more flexible rate reportedly came ahead of the Monetary Policy Committee’s announcement of the benchmark interest rate.

The Monetary Policy Committee (MPC) of the CBN has also voted to retain the monetary policy rate at 11.5 percent.

Mr. Godwin Emefiele, Governor of CBN, made the announcement at a media briefing at the CBN Headquarters Tuesday afternoon.

Other parameters, such as Cash Reserve Ratio (CRR), Liquidity ratio, and asymmetric corridor remain unchanged.

However, the MPC at the briefing also lamented the effect of insecurity on the country’s economy in recent times.

Emefiele the Nigerian Government to intensify efforts at tackling the widespread insecurity of lives and property so as to successfully tackle inflation in the country.

According to the CBN Chief, the MPC advised against another total lockdown, stating this will reverse most of the economic gains recorded in the country since the gradual reopening of the economy.

At least 70 percent of Nigeria’s population must be vaccinated if the country means to achieve economic recovery, said the MPC.

In respect of questions on CBN’s ban on cryptocurrency transactions and accounts in the Nigerian banks, the CBN insisted that the encrypted nature of cryptocurrency transactions makes it hard for frauds to be investigated and criminals apprehended.

Accordingly, no responsible Central Bank will support such transactions, Emefiele declared.

The CBN Governor, nevertheless, promised that pending the examination of the virtual currency by the Bank, digital currencies will come to fruition in Nigeria.

What the analysts say on latest development

Meanwhile, the median estimate in a Bloomberg survey is for the bank to hold at 11.5 percent.

In his comment on the development, Neville Mandimika, a Johannesburg-based economist at Rand Merchant Bank via e-mail said: “The official unification of these rates is a welcome development as the fragmented foreign-exchange market had been a cause of confusion and a source of arbitrage.

It was learnt that Nigeria adopted the multiple exchange-rate regime “to avoid an outright devaluation of the Naira” by keeping a stronger pegged rate for official transactions and weaker exchange for non-government related transactions.

Hitherto, the International Monetary Fund (IMF) and the World Bank on the country’s currency management system, had criticised the Federal Government by holding back a $1.5 billion loan in a bid to push for more foreign-exchange reforms.

Nigeria as well experienced more acute hard-currency scarcity 2020, after the COVID-19 pandemic led to a plunge in oil prices, forcing it to devalue the local unit twice.

Omotola Abimbola, an analyst at Chapel Hill Denham, by phone stated that “the key thing for the market is to now allow for more flexibility in the pricing of the investors and exporters window rate in order to completely narrow the spread between the Nafex and the parallel market,” Bloomberg report said.

The latest Central Bank of Nigeria’s move is expected to improve confidence in policy making, but recovery in portfolio inflows will not be immediate as investors wait for more Dollar liquidity, analysts including Simon Kitchen and Mohamed Abu Basha at Cairo-based EFG Hermes said.