The central bank has allowed the official naira to meet the parallel market rate for the first time since 2018
In the coming weeks, MNCs should monitor further monetary policy developments and new banking regulations, as well as the central bank’s interest rate decision after its meeting on July 24–26. While the naira is likely to stabilize in the coming weeks, monitor whether any interventions come in if volatility exceeds expectations. In addition, with improving FX liquidity, the list of goods prohibited or restricted from being imported into Nigeria could be subject to change.
Overview
After ousting the president of the Central Bank of Nigeria (CBN) Godwin Emefiele on June 9, President Bola Tinubu proceeded with his exchange rate unification project and FX access concerns, rearranging the national monetary policy. On June 14, the CBN announced trading restrictions on the official market were gone, driving the naira down 36% and liberating the exchange rate managed since 2017. On June 19, the CBN lifted cash deposit restrictions on domiciliary accounts, allowing US$ 10,000 daily withdrawals and greater flexibility for individuals in managing their funds. Such a measure is a sign of the slow lifting of some capital controls, and one of the factors that triggered the last naira depreciation of 16.19%, making both the parallel and official rates meet for the first time since September 2018.
Our View
Fuel subsidy removals and the exchange rates’ unification were at the center of President Tinubu’s main market distortions to fix. Still, further banking reforms are expected to calibrate the naira depreciation and more importantly manage capital liberalization. While many goods were already imported at the parallel rate and thus the inflation implications of this exchange rate unification will be moderate, more significant risks to inflation are likely to come from fuel subsidy removals. Better access to FX is expected due to more currency trading and further reforms to alleviate capital controls. However, executives should still monitor for potential interest rate hikes if inflation sees a further uptick.
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