Nigerian Central Bank plans more steps toward managed FX float
Nigeria plans to announce further measures to loosen foreign exchange controls “in the next couple of weeks” as it transitions to a managed float regime, a senior central bank official said.
The monetary authority has not intervened in the currency market since it allowed the naira to slide as much as 29% in one day last week, Deputy Governor Kingsley Obiora said in an interview in Rabat, Morocco.
“We are allowing the market itself to set a price,” Obiora said.
Nigeria has seen a rash of reforms since President Bola Tinubu was sworn in last month to replace Muhammadu Buhari, who pursued unorthodox economic policies in his eight years in power. The tight controls that the central bank earlier had in place had resulted in an almost 60% spread between the official and a parallel market rate of the currency.
The naira traded at about 757 to the dollar in the parallel market on Monday. In the so-called investors and exporters window it closed at 770.38 naira to the dollar, the first time in years that the official rate is weaker than the unofficial rate.
Managed Float
Nigeria is not going to set the currency totally free even now, Obiora added.
“There is no country in the world, even the US, that has a completely free float,” he said. The central bank will continue to pursue a managed float, he said.
It may be too early to determine if the naira’s exchange rate to the dollar has bottomed out, Obiora said. He pointed to analysis done by the International Monetary Fund and international banks, which correctly suggested that the naira should not be as weak as the parallel market indicated, he said.
Obiora expects that the supply of foreign exchange will eventually be unlocked once the price of the dollar reaches a level that both buyers and sellers consider “fair.”
Tinubu’s early decisions since becoming president have caught the attention of investors after he scrapped fuel subsidies that cost $10 billion last year and removed the central bank governor who had been seen as the architect of the earlier unorthodox policies. Dollar bonds have gained and the stock market jumped to a 15-year high as a result of the changes.
The removal of subsidies, along with the convergence of the exchange rates will drive economic growth, especially from next year when the policies start making an impact, Obiora said.
“I completely expect us to do 5% to 6% growth next year,” he said. “Over the next four years, you may see the GDP approach something like $600 billion to $700 billion,” he said.
