Naira Stability, Policy Stability


December 5, 2017/FBNQuest Research  

Today’s chart highlights the average official (interbank) and bureaux de change exchange rates over the past two years. Fx scarcity and therefore a large rate differential marked the period through to Q1 2017 when the CBN started to experiment with multiple currency practices (MCP). 
The premium had narrowed to about N60 per US dollar by June, where it has since remained (although the data series only runs to September). Yesterday the official selling rate weakened by N1 to N307, prompting some speculation on the CBN’s gameplan. 
We still refer to MCP although the CBN could argue that there are essentially two rates: the official subsidised rate of about N306 for priority transactions such as external debt service and IMF subscription payments, and the other  of +/-N360. 
This second group covers the CBN’s sales for the payment of invisibles by retail, the bureaux and NAFEX. It accounts for a sizeable majority of daily transactions. 
This could be an argument for the unification of rates on the grounds that “the hard work has been done”. The NNPC’s finances would also benefit. Alternatively and more likely in our view, it is an argument to maintain the current arrangements. 
The preferential rate favours certain government transactions. We feel that the CBN still hankers after a stable, and ideally strong naira. The CBN governor has said more than once that the improvement in the macro data and newsflow warrants naira appreciation.  

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We do not see any significant domestic pressure for unification. The FGN could legitimately say that it has tapped the Eurobond market this year despite the opposition of the IMF, the World Bank and others to its MCP.