Ibe Kachikwu

Nigeria’s government has used a lower currency rate than its official central bank rate for petrol imports, the junior oil minister said on Monday, signalling what analysts believe could be a move towards a two-tier exchange rate regime.

Emmanuel Ibe Kachikwu said the government, which increased petrol prices in mid-May, used a conversion of 285 naira to the dollar to set prices, compared with the official rate of 197.

Retail petrol stations could therefore charge as much as 145 naira ($0.73) a litre, up from 86.5 naira before.

The increase has come at a time when Africa’s biggest economy is contracting due to lower world oil prices, amid rising domestic inflation and a pegged currency. The naira is trading at some 40 percent below its official rate.

The central bank is set to announce a decision on interest rate on Tuesday, with analysts predicting a hike to fight rising inflation and a devaluing naira over the next few months.

President Muhammadu Buhari has thus far rejected calls by the International Monetary Fund for a more flexible exchange rate.

“We think the exchange rate of 285/$1 used to arrive at the petrol price ceiling of 145/litre suggests a two-tier exchange rate may be a possibility,” Yvonne Mhango, economist at Renaissance Capital said.

Kachikwu said the government looked at 197 naira while determining the new petrol price but “moved away from that because it didn’t solve the problem”.

“I have told you about the 285 conversion as the foreign exchange rate, the only component that was changed on the (petrol price) template,” he told a briefing in Lagos.

Nigeria depends on imports for consumption of most goods including petroleum products, due to inadequate refining capacity. Last year the central bank curbed access to dollars for a range of goods to preserve dwindling foreign reserves, frustrating businesses and households.

In the two-tier forex market, a fixed rate of 197 could apply to essential imports, while luxury goods may be left to a managed float that trades around 250, analysts and business leaders have speculated.

Kachikwu said government-owned NNPC stations have capacity to sell petrol at 120 naira or below but it did not want to encourage private firms to divert products for profits.