FX Change off the Domestic Agenda

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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 have 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.
 
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.  
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