IMF Salutes FX Unification as Naira Rises to N663/$1 at I&E Window

Nume Ekeghe

The International Monetary Fund (IMF) yesterday applauded the federal government for its decision to unify forex exchange rates by operating a free-floating exchange determined by the market.

The Central Bank of Nigeria had on Wednesday collapsed all its multiple official FX exchange rates into the Investors and Exporters (I&E) window.
The IMF Representative in Nigeria, Mr Ari Aisen in a statement to THISDAY noted that this development had been a longstanding recommendation to Nigeria and that the Fund is ready to provide technical assistance to enable this policy to succeed.

This is just as the Naira appreciated at the I&E window yesterday to N663/$1 from N702/$1 it closed the previous day, indicating a N39 gain for the Naira.
Ari stated: “The Fund greatly welcomes the authorities’ decision to introduce a unified market-reflective exchange rate regime in line with our long-standing recommendations. We stand ready to support the new administration in its implementation of FX reforms.”

Also, on the parallel market, the nation’s currency appreciated by N2 from N762/$1 the previous day, to N760/$1 yesterday.
It would be recalled that the Fund in its Article IV Consultation with Nigeria released in February this year had recommended the removal of fuel subsidies, unification of exchange rates, and an array of fiscal reforms which the current administration in its early days is already implementing.

The IMF in that recommendation stated: “Directors encouraged a continued move toward a unified and market-clearing exchange rate by dismantling various exchange rate windows at the CBN. Providing clarity on exchange rate policy would help boost investor confidence, quell capital outflow pressures, and rebuild buffers.”

The article also noted that directors urged decisive and effective monetary policy tightening to avoid a de-anchoring of inflation expectations.
Noting recent increases in the policy rate, they encouraged the CBN to stand ready to further increase the policy rate if needed and to implement additional actions, including fully sterilising central bank financing of fiscal deficits and phasing out credit intervention programmes.

It further states: “Strengthening the CBN’s independence and establishing price stability as its primary objective is critical. Directors also urged the authorities to finalise securitisation of the CBN’s existing stock of overdrafts and emphasised that the CBN’s budget financing should strictly adhere to the statutory limits.”