IMF to provide assistance to Nigeria as the naira strengthens to N663/$

At the end of business on Friday, the naira was trading at 663.04 against the dollar. This followed a significant decline in value after the Central Bank of Nigeria allowed the national currency to float freely against the dollar and other global currencies.

Within a span of 24 hours, the currency experienced a 5.9% appreciation, rising from N702.19 per dollar at the close of business on Thursday.

Based on data from the FMDQ Securities Exchange, the naira reached N664.04 per dollar at the close of trading at the I&E Window on Wednesday, and N702.19 per dollar on Thursday, following the CBN’s directive to Deposit Money Banks to remove the rate cap on the naira at the official Investors’ and Exporters’ Windows of the foreign exchange market.

The decision by the CBN to allow the currency to float was welcomed by the organized private sector and economists who believed it would bring about a consolidation of the country’s multiple exchange rates and stimulate the foreign exchange market.This development grants buyers and sellers of foreign currency in the official FX markets the freedom to quote rates they find suitable, unlike the previous practice where rates were determined by the CBN.

While the official exchange rate appreciated, there was a depreciation observed in the parallel market, which opened at N750 per dollar and closed at N760 per dollar on Friday.

However, according to a recent projection by global investment bank Morgan Stanley, the naira is expected to appreciate based on the parallel market rate.

In a publication titled “Nigeria Sovereign Credit Strategy ‘No Longer Pumped'”, the bank suggests that as more financial flows are redirected through formal banking channels, the unit will experience appreciation in the near future, leading to a convergence between the I&E rate and the parallel market rate.

Furthermore, JP Morgan stated in its commentary that the official exchange rate of the naira to the US dollar will stabilize in the coming months.The bank views the recent policy announcements as positive surprises and supports a favourable outlook on Nigeria’s sovereign credit.

However, the multinational financial services firm anticipates initial pressure on the local currency due to a monetary policy reset, which could result in an increase in the black market rate.

In a statement on Friday, Ari Aisen, the Resident Representative for Nigeria in the International Monetary Fund, expressed the organization’s support for the unified exchange rate and reassured Nigeria of the IMF’s assistance in implementing foreign exchange reforms.

The statement read, “The Fund greatly welcomes the authorities’ decision to introduce a unified market-reflective exchange rate regime in line with our long-standing recommendations. We stand ready to support the new administration in its implementation of FX reforms.

”The PUNCH further learnt despite unifying exchange rates, the CBN has said that the status quo remains on the 43 non-eligible items banned from the forex market introduced under the suspended governor, Godwin Emefiele.

According to the information contained in a Q&A document published on the bank’s website, the items are not permitted to be funded from the I&E window. “The status quo remains on the 43 non-eligible items. The items are not permitted to be funded from the I & E window”, it was stated.

The PUNCH earlier reported that Nigerians imported not less than nine items worth N18.12tn from the forex ban list of the CBN between 2016 and 2022.

According to an analysis of Nigerian Foreign Trade reports of the National Bureau of Statistics from 2016 to 2022, items such as crude palm oil, vegetable products, animal products, meat, vegetable fats and oil, steel products, rubber, plastic, clothes, and textiles were imported from various countries.

In a different report, The PUNCH stated that despite the unavailability of forex for banned items by CBN, Nigerians imported five items worth N543bn in the first quarter of 2023.