IMF urges Nigeria to let banks set naira rate

Bloomberg

The International Monetary Fund (IMF) has urged the Central Bank of Nigeria to reduce its interventions on the foreign-exchange market and allow banks to set the naira’s conversion rate.
This will stop speculation around possible devaluation fuelled by dollar shortages, rising inflation, limited debt servicing capacity and restrictions on dollar transactions, the IMF said after a mission.
“These factors hinder much-needed capital inflows, encourage outflows and constrain private sector investment,” the IMF said. The central bank “should step back from its role as main foreign exchange inter-mediator” and allow “banks to freely determine foreign exchange buy-sell rates.”
Africa’s largest economy operates multiple exchange rate windows, including a fixed official rate and a parallel market outside the control of the central bank. The exchange rate has weakened more than 30% on the parallel market, compared with the 4% depreciation recorded by the official rate this year.
A more than 70% differential between both rates is driving speculation that the government will devalue the official rate to close the gap.
The Washington-based lender encouraged the central bank to adopt one “market-clearing exchange rate.” It also warned that the government’s dependence on the central bank to finance the budget, in addition to volatility in the parallel market, could drive up inflation.
Annual price-growth reached a 17-year high of 21.1% in October from a year earlier.