The analysts, in their Economic Outlook for the second quarter of this year released on Thursday, noted that since the start of the latest oil price weakness, there had been three devaluations – in November 2014, February 2015 and June 2016.
They noted that the authorities had traditionally devalued as a last resort when they had exhausted all available policy options and administrative measures, adding that they had favoured a managed rate to contain both import costs and inflationary pressures.
Noting that the new interbank rate after the third devaluation quickly settled into a range of N305 to N307 per US dollar, the analysts said, “This rate remains but is now one of several in force following the CBN’s adoption of several currency windows in March/April 2017.”
There are separate sales at different rates to banks (for invisibles for retail), to banks (for importers on a wholesale basis), to banks for portfolio investors and exporters (NAFEX), to SMEs and to Bureaux de Change.
The analysts said, “These unorthodox practices are having far greater success than the market had anticipated. Turnover on NAFEX (i.e. both sides of trades) has accelerated from $400m per week in July 2017 to a range of $1bn-$1.4bn, and the rate settled at +/- N360 per US dollar.
“Offshore investors have committed new money, fuelling the rise in the stock market and narrowing of naira debt yields over the past 12 months. Foreign exchange is available in the various windows, provided the buyer is happy with the price.”
FBNQuest said its manufacturing Purchasing Managers Index had been in positive territory since March 2017, driven largely by greater access to imported raw materials.
“If these trends prevail and deepen, the policy will have worked.
“We do not see a devaluation of the interbank rate/unification of rates ahead of the elections in Q1 2019,” the analysts stated.
They noted that the nation’s external reserves had risen strongly, adding, “the CBN has a new confidence about it.”
The analysts said, “We are also unconvinced by the theory that the authorities are eager for naira appreciation: if this was so, why is the CBN visible on the bid at the NAFEX on a regular basis? Users of NAFEX will argue that the adjustment has already taken place since it is their window.
“Unification of rates may come but the authorities are in no hurry. It suits their purposes to have the interbank rate of N306 for selected transactions such as external debt service payments and other government dues in forex.”