By Dipo Olowookere
The Central Bank of Nigeria (CBN) has been urged to limit its foreign exchange (forex) interventions in the currency market and allow commercial banks to fix the Naira to Dollar rates freely.
In a statement on Friday, the International Monetary Fund (IMF) pointed out that implementing these suggestions would go a long way to strengthen the local currency against its foreign pairs at the market and boost investors’ confidence.
The apex bank regularly dips its hands into the country’s external reserves to take FX to defend the Naira in a bid to make the domestic currency stronger at the exchange market.
These Dollars are usually disbursed to commercial banks to enable them to meet the forex requests of their customers, especially those who need them for BTA/PTA, payment of school fees and medicals, among others.
However, the amount of forex in the banks is insufficient to meet users’ needs, forcing them to approach the black market for FX at higher rates.
This newspaper reports that on Thursday, the Naira was exchanged with the Dollar at the official FX window, the Investors and Exporters (I&E) market, at N445.67/$1 and in the parallel market, it was sold for N785/$1.
The scarcity of forex is responsible for the weakening of the domestic currency against the greenback in the unauthorised segment of the market. The exchange rate is better now as it was sold above N900/$1 some days ago as a result of the plan to redesign the N200, N500, and N1,000 notes.
To address the highly volatile exchange rate of the Naira to the Dollar, which is caused by the forex liquidity problem in the country, the international lending organisation has advised the CBN to allow commercial banks to determine the rates and not the central bank.
“In the medium term, the CBN should step back from its role as main FX intermediator, limiting interventions to smoothing market volatility and allowing banks to freely determine FX buy-sell rates,” a part of the disclosure from the IMF, which was made available to Business Post said.
The IMF maintained its stance on the need for the central bank to collapse the multiple exchange rate regime into one, noting that it would bring about stability in the forex market.
“The mission reiterated its past recommendations to move towards a unified and market-clearing exchange rate by dismantling the various exchange rate windows at the CBN accompanied by clarity on exchange rate policy and supportive fiscal and monetary policies,” it said.
