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Nigeria’s central bank is adopting a flexible foreign exchange rate regime, Governor Godwin Emefiele said on Tuesday, in a policy U-turn designed to boost exports and stave off a recession in Africa’s biggest economy.
The bank has previously kept a de facto peg of around 197 naira per dollar but that has become unsustainable due to a shortage of hard currency stemming from a slump in oil revenues. On the parallel market, the naira has fallen to some 40 percent below the official rate.
Members of Nigeria’s monetary policy committee decided to prioritize growth over price stability, opting to leave the key lending rate unchanged at 12 percent despite rising inflation, and announced that it would adopt a flexible exchange rate policy to address the myriad of economic challenges caused by dollar illiquidity.
“The MPC (Monetary Policy Committee) voted unanimously to adopt a flexible exchange rate policy to restore the automatic adjustment properties of the exchange rate,” Emefiele told reporters.
According to analysts at Vetiva Reseach, if successful, this would move transactions from the informal parallel market to the interbank market and could close the gap between both markets in the medium term.
Details of the new rules would be published in a few days, Emefiele added.
He said the central bank would “retain a small window for funding critical transactions” and that “details of operations of the market would be released by the central bank at the appropriate time”.
On Monday, the government said it would use a lower rate of 285 naira per dollar for petrol imports rather than the pegged official rate of 197.
