Reports have confirmed that the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, will today finally unveil the much-anticipated guidelines paving the way for the new forex regime.
As part of the new policy, the CBN will allow market forces determine the exchange rate between the naira and other currencies but may retain a small intervention window to allow it intervene in some instances ‘critical’ to the nation’s economic growth and will apply foreign exchange at an adjustable rate between N230 and N250, depending on the rate in the market.
A top CBN official, who confirmed yesterday that Emefiele would brief the press today on the flexible exchange regime however did not provide further details on what the guidelines would entail.
He said the CBN was now adequately prepared and has the firepower to support the new flexible forex regime, adding: “Once it is announced, we expect to see stability in the forex market and some appreciation in the parallel market that will reduce the gap between the official and informal forex market rates.”
Another source with the central bank however revealed that he expects the central bank governor, having held wide consultations with stakeholders in the financial markets on the new structure for the forex market, to announce a single window, not a two-tier forex exchange regime with a special intervention window for critical transactions as announced by the governor after last month’s meeting of the Monetary Policy Committee (MPC).
The source added that he expects Emefiele to also announce a devaluation of the naira to an adjustable rate that will be determined by a two-way quote system.
“The naira will be devalued tomorrow (today) and will be market-driven going forward by a two-way quote system,” the source revealed.
The CBN has been hamstrung by dwindling oil earnings, brought on by low oil prices and the violent activities of militants in the Niger Delta. Both had combined to reduce the country’s monthly oil revenue from an all-time high of $3.2 billion about two years ago to about $500,000 in April.
Experiencing great difficulties funding the nation’s imports as a result of scarce foreign exchange, a situation that put increasing pressure on the naira, the CBN for over a year pegged the naira at N197-N199 to the dollar and imposed currency curbs on certain items.
Its obstinacy was worsened by President Muhammadu Buhari’s ill-advised opposition to the devaluation of the naira.
But as the economy contracted and plunged into a recession, foreign investors fled the economy and inflation spiralled, the central bank was forced to rethink its forex policy in order to open up the forex market while conserving forex reserves.
The dollar currently trades at N365 on the parallel market.
At the last MPC meeting held last month, members agreed to hold all policy rates constant and introduce greater flexibility in managing the forex rate. As a result of this, a lot of investors were cautiously optimistic and indeed excited.