21st March, 2020
The Central Bank of Nigeria may have devalued the Naira by as much as 15 per cent as it seeks a single exchange rate instead of the often criticised multiple rates.
An indication that the Naira has been devalued came when news filtered that the CBN sold the U.S. dollar to Jaiz Bank at 360 naira on the official currency market, instead of N306 where it was previously pegged. The CBN also sold dollar at the Importer and Exporter window at N380.
Much later on Friday, CBN published N360 as the official exchange rate on its website.
The crash in the oil price is forcing the apex bank fuse all the three windows into one, analysts said. Despite diversification plans, earnings from sales of crude account for 90% of Nigeria’s foreign-exchange and more than half of government income.
As of 19 March the FX reserve was down to $35.9 billion as oil sells for $27.5 per barrel.
The CBN now wants to merge the official rate, the rate for importers and exporters and rate for foreign-exchange bureaus, among others, according to people familiar with the plan.
The multiple rates which had been criticised by the International Monetary Fund, has kept the official rate at about 307 naira per dollar. It uses this to supply cheap foreign exchange to government departments and select companies, including fuel importers. It created an importers and exporters window in 2017, in which the Naira was allowed to weaken after an economic contraction in 2016.
Last week JP Morgan said it expected Nigeria to devalue its currency by the end of June after a sharp oil price tumble ramped up the pressure on foreign reserves.
A N400 to one US dollar rate is being speculated as the ultimate exchange rate for the dollar.
Nigeria has seen its currency come under pressure this year after oil prices slumped to around $30 a barrel, below the government’s $57 target, amid global fight against spread of coronavirus and a price war between Saudi Arabia and Russia.
“Today we allowed the rate at the importer and exporters (I&E) window to adjust in response to market developments,” said a senior central bank official, confirming the bank changed the rate at the window for foreign investors to 380 Naira per dollar from 366 naira per dollar.
On 12 March, the CBN director of corporate communications, Isaac Okorafor denied any move to devalue the Naira.
“In light of current circumstances and macroeconomic fundamentals, the CBN
has not devalued the Naira”, he said.
The current circumstances he was referencing included the outbreak of the Coronavirus, which led to global economic slowdown, fall in the price of crude oil, and less inflow of dollars into Nigeria.
“The associated public health concerns have also led to factory closures in China, substantial drop in imports, widespread travel restrictions around the world, and cancellation of many conferences, sporting events, business travels, and FX orders.
“The size of Nigeria’s foreign exchange reserves remains robust and comfortable, given the current realities of Nigeria’s genuine and legitimate FX demand. As such, the CBN remains able and willing to meet all genuine demand for foreign exchange for legitimate transactions”, Okorafor said.