CBN May Fix Exchange Rate at N255/315 to Dollar

Indications have emerged that the Central Bank of Nigeria, CBN, might peg the naira exchange rate against the dollar at N255/315 to dollar, Sub-Saharan Africa Economist at Renaissance Capital (RenCap), Yvonne Mhango has said.

According to the analyst, the N255/315 rate represents fair values for the local currency as suggested by two real effective exchange rate models.

“At this new ‘price’ for the naira, demand and supply would be brought into equilibrium through a decrease in forex demand (rationing effect) and increase in forex supply (the incentive effect). This would imply short-term pain, not least because of the inflationary effect, and high interest rates. But we believe decent growth would return, particularly given the low base effect,” she said.

In a report titled: ‘Nigeria: Winds of change- More flexible forex policy’, she said the naira peg of N197 to N199 to a dollar would be sustained to support imports for critical sectors, as deemed by the government, such as agribusiness, manufacturing, exporters, fuel refineries, and the power sector.

“We expect all other forex transactions to be directed towards a new, flexible interbank forex market, which the Central Bank of Nigeria (CBN) will cease funding. This market would be funded by exporters, such as international oil companies, and autonomous sources, in our view. We expect that alongside the unveiling of a new forex policy framework, the authorities will specify the transactions that will take place at the fixed peg window,” she said.