Nigeria: New FX rate, no sign of full devaluation yet

The introduction of another official FX rate in Nigeria is not (as many seem to suspect) the prelude to abolishing FX controls. Over the longer term, however, we still expect that a weakening of the overvalued currency is inevitable. Nigerian policymakers further complicated their country’s FX system this month by introducing another official FX rate. Consumers are able to access dollars at the new rate – pegged at 378/US$, 20% weaker than the official rate of 315/US$ – in order to fund foreign travel, medical expenses, and foreign school fees. The Central Bank of Nigeria has already offered US$500mn at the new rate, of which about US$370 was taken up by commercial banks. The Bank justified the policy as an effort to increase the availability of FX. Indeed, it does appear to have eased the country’s US$ a bit. The parallel market FX rate, which provides a market-driven gauge of dollar liquidity, strengthened after the new rate was announced. But the gap between the official and parallel rates remains wide, suggesting that demand still far exceeds supply.