Why The Latest Exchange Rate Policy Is Another Devaluation Of The Naira


The Central Bank of Nigeria announced a new FX policy on Monday, 20th of February, 2017 targeting the retail end of the black market. An analysis of this new policy was published earlier on this website and you can easily get it here.

This new policy is not one to take hook line and sinker, especially if you consider the way the CBN hoodwinked everyone with the last Flexible Exchange Rate Policy. We have read this policy over and over again and from all indications it appears that the CBN has just introduced a new round of devaluation.

We arrived at this conclusions interpreting the last sentence in the CBN’s press release.

“The CBN expects such retail transactions to be settled at a rate not exceeding 20 percent above the interbank market rate.”

Interpretation

  • By allowing banks to sell forex at a 20% premium to the current interbank rate, the CBN is effectively devaluing the naira.
  • If you assume that the current CBN rate is N305, then this implies technically that banks will sell Forex at a rate of N366/$1.
  • This is technically a devaluation of 20%

Whenever the CBN decides to implement this policy, one thing is for sure, the new official rate cannot be N305.

Nairametrics

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

What's your say?