High oil prices present Nigeria’s central bank with a chance to adjust the exchange rate – World Bank

The World Bank has stated that surging oil prices, being the highest in 9 years, have provided the Central Bank of Nigeria with an opportunity to adjust the exchange rate reflective of market dynamics.

This was disclosed by the World Bank in a document titled ‘Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual.’

The international lender told the Central Bank of Nigeria that timely and consistent monetary policy and exchange rate unification have become critical. The Bank also stated that despite the CBN’s claim of unifying the official exchange rate the apex bank still supplies FX to at least four windows.

What the World Bank is saying

• World Bank stated that clarity on exchange rate policy, and transparency in its management, are necessary to attract more significant capital inflows, including foreign direct investment.
• Hence the International lender urged the Central Bank of Nigeria to unify the exchange rate. The bank said, “the benefits of a more effective exchange rate management, with a view towards a unified and market-reflective exchange rate, are more significant than in previous years.“
• The Bank stated that the time was right for a more flexible exchange rate system but urged that the pace of adjustment be gradual. “Favorable external conditions (oil prices being the highest in nine years) provide an opportunity to adjust the exchange rate reflective of market dynamics. Allowing further gradual adjustment in the IEFX rate, where the CBN manages the price, would help eliminate misalignment and alleviate persistent FX pressures,” the Bank said
• “The CBN took steps to unify multiple exchange rates by adopting the IEFX window rate as its official exchange rate in May 2021. However, different windows still exist, and the parallel rate premium continues to climb, reaching 39 percent over the official IEFX rate in March 2022,” the Bank added

The CBN, according to the World Bank, continues to supply FX to at least four windows, sometimes at varying rates: (i) the I&E window; (ii) the secondary market intervention sales retail window; (iii) the small and medium-sized enterprises (SME) window; and (iv) the window for invisibles.