Naira Stability, Policy Stability
highlights the average official (interbank) and bureaux de change exchange
rates over the past two years. Fx scarcity and therefore a large rate
differential marked the period through to Q1 2017 when the CBN started to
experiment with multiple currency practices (MCP).
The premium had
narrowed to about N60 per US dollar by June, where it has since remained
(although the data series only runs to September). Yesterday the official
selling rate weakened by N1 to N307, prompting some speculation on the CBN’s
We still refer to MCP although the CBN could argue
that there are essentially two rates: the official subsidised rate of about
N306 for priority transactions such as external debt service and IMF
subscription payments, and the other of +/-N360.
This second group covers the CBN’s sales for the
payment of invisibles by retail, the bureaux and NAFEX. It accounts for a
sizeable majority of daily transactions.
This could be an argument for the unification of
rates on the grounds that “the hard work has been done”. The NNPC’s finances
would also benefit. Alternatively and more likely in our view, it is an
argument to maintain the current arrangements.
The preferential rate favours certain government
transactions. We feel that the CBN still hankers after a stable, and ideally
strong naira. The CBN governor has said more than once that the improvement in
the macro data and newsflow warrants naira appreciation.
not see any significant domestic pressure for unification. The FGN could
legitimately say that it has tapped the Eurobond market this year despite the
opposition of the IMF, the World Bank and others to its MCP.
Source : Proshare, December 5, 2017