Moody's Investors Service explained that merging the naira's various rates anytime soon may weaken the currency and raise fuel prices, which will accelerate inflation.
Nigeria's central bank introduced the current multiple foreign exchange policy in mid-2016 to cushion the effect of foreign exchange scarcity after the 2014 crash in oil prices.
The rating agency said the country will probably maintain its multiple foreign exchange regime until early 2020.
Aurelien Mali, a sovereign analyst with Moody’s, said in an interview with Bloomberg in Lagos on Wednesday, May 9, 2018, that if the government merges the exchange rates, “they won’t be able to provide discounted dollars to oil marketers.”
“It means that either they have to increase pump prices or give subsidies to marketers, which would impact public finances. Neither option is credible at the moment.”
Aurelien Mali said it is unclear how the central bank will try to unify the naira but he expects that monetary officials to continue to manage instead of floating it.
“The jury’s out on whether it will be 305 or 360,” he said. “For the real economy, the rate is already 360. That’s what many exporters, importers and manufacturers have to use. It’s the de facto exchange rate.”
The International Monetary Fund (IMF) in its Article IV consultation on Nigeria which was released on Wednesday, March 7, 2018, called for a ‘greater’ exchange rate flexibility on a more permanent basis to shield the economy from external shocks and improve trade competitiveness
The IMF said the existence of multiple exchange rates creates distortions in the economy and discourages foreign investment.