FX Change off the Domestic Agenda

Monday, April 16, 2018 /08:45 AM/ FBNQuest
Research

The
CBN’s unorthodox foreign exchange policies have exceeded almost all
expectations, including we are convinced its own, and can be said in several
ways to have attained its objectives. Fx has become available for all users provided
that they can live with the price in the appropriate window.
 

Stability
has been achieved: the differential of about N60 per US dollar between the
interbank/official and the bureaux de change (BdC) rates has barely moved since
June 2017. Turnover at the investors’ and exporters’ window (NAFEX) has settled
well above US$1bn per week.
   

The aggregate
turnover data, of course, represent both sides of trades. There is no detail
available on the participants although it is widely said that the CBN has
become an active player on the bid. One reliable source has suggested that its
cumulative purchases amount to at least US$6bn.

This intervention
has prevented appreciation of the naira exchange rate, and conflicts with the
view attributed to the CBN hierarchy that the currency is undervalued in the
context of the international oil price and Nigeria’s reasonably strong external
balance sheet.
 

The success of
the experiment could be developed into an argument for the unification of rates
(at or near the NAFEX level) on the grounds that “the hard work has been done”.
The NNPC has to surrender its export proceeds at the interbank/official rate, and
would benefit from such.
 

Whatever the
imperfections, we do not see any change before the elections.

Proshare Nigeria Pvt. Ltd.

While we have a firm crude oil price, we
have very modest domestic pressure for unification. This would rapidly change
if the price crashed again, which is not our expectation. For now, as urged in
the latest communique of the monetary policy committee, the CBN is accumulating
reserves for the proverbial rainy day with haste.
  


Proshare Nigeria Pvt. Ltd.
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