The CBN’s new confidence in fx policy

Our chart captures exchange-rate movements over the past two years, marked initially by the fx scarcity triggered by the oil price slide in mid-2014. The differential between the rates (official and bureaux de change) initially narrowed with the liberalization of June 2016 that was not to be, but widened again until the CBN’s adoption of what we might loosely term multiple currency practices (MCP) in March. The potential game-changer has been the investors’ and exporters’ fx window (NAFEX). The local media no longer routinely quotes parallel rates from a well-known website.

The IMF’s Annual report on exchange arrangements and exchange restrictions for 2016 shows Nigeria among countries said to operate a stabilized arrangement with a monetary aggregate target. The footnotes add that it had a de facto exchange-rate anchor with the USD.

We have since moved on in the sense that the CBN operates MCP including NAFEX.

The monetary authorities have a spring in their collective step. They can legitimately point to the upward trend in reserves despite the CBN’s supply to its fx windows, the rise in manufacturing PMIs and the contentment of retail with much improved access to fx for invisibles.

If we are looking for negatives, we single out the potential for abuse of MCP and anecdotal evidence that some investors will stay away because of them.

Taking a pragmatic view, the CBN is under limited domestic pressure to change tack. Portfolio investors can argue that the adjustment has already happened because they cannot trade fx at the official rate of N306.

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