According to traders, Nigeria’s Central Bank allowed the Naira to fall to a new low against the dollar on the official market on Friday, possibly as part of a bid to unify multiple exchange rates. The naira hit a record low of 419.75 against the dollar on Friday, after trading in a range of 380 to 381 since July last year.
The Naira then closed at 411.25, the most recent over-the-counter spot market closing rate.
The CBN also removed its official exchange rate of N379/$1 from its website, adding fuel to speculation that the CBN intends to make the NAFEX rate the default reference exchange rate for official and legal transactions.
However, the move weakened the Naira by 0.2 percent on the black market, with buying and selling hitting the N480-N484 range.
One currency trader at a major Nigerian bank said that, “What the central bank is saying is that the (OTC) spot rate will be the official rate because that’s where the largest volumes trade.”
Nigeria has many currency regimes, which frustrates companies and has led the World Bank to call for the rates to be consolidated in order to attract investment.
The naira is under pressure as foreign exchange suppliers, such as offshore investors, exited after the COVID-19 pandemic caused a drop in global oil prices.
The currency was trading at 410 naira on the official market in February, according to Central Bank Governor Godwin Emefiele, and the government has been using that rate for its sector as it seeks to raise earnings from crude sales, the country’s key export.
The World Bank has attached currency reforms to the approval of a $1.5 billion budget support loan.
The central bank attempted to unify prices and increase the supply of dollars by intervening directly.
After quoting the 150-day futures contract at 435.81 naira in its first dollar sales to foreign investors this year, it revised the naira futures rate upwards last month to relieve pressure on the currency.
The bank’s interest rate setting meeting is scheduled for later this month, with economic data on inflation and first-quarter growth anticipated next week.
It has held rates unchanged to support the economy, which has been hampered by lower oil prices and the effects of the COVID-19 pandemic, but dollar shortages have contributed to increasing inflation, which is a major source of concern for the central bank.