The Central Bank of Nigeria (CBN) Wednesday announced that it will allow the naira exchange rate to be market-driven, setting the stage for a devaluation of the currency when the new system comes into effect June 20.
A group of around 10 primary dealers through which the naira will be traded will be selected by the CBN, reports Bloomberg.
There will only be one exchange rate and the bank will intervene in the market “as the need arises,” CBN Governor Godwin Emefiele told reporters in Abuja.
“We’re talking about an open, transparent two-way system,” Emefiele said.
“It’s intended we don’t have speculators and rent-seekers. I don’t expect that any other exchange rate will be recognised.”
Three-month non-deliverable naira forward contracts surged as much as 9.5 percent to a record 333 per dollar after the announcement, suggesting traders expect the currency to trade around that level in the market, compared with the current official rate of 199.
Emefiele has faced calls for more than a year to devalue the currency, as other oil exporters from Russia to Kazakhstan and Angola have done, amid a rout in crude prices since mid-2014 to around $50 a barrel.
Investment into Nigeria has shrivelled as foreigners are put off by capital controls needed to defend the currency’s peg of 197-199 per dollar, while local businesses have struggled to import raw materials and equipment.
Emefiele said last month the central bank would implement a “flexible” exchange-rate policy to help alleviate a dollar shortage that has strangled the economy.
Gross domestic product contracted in the three months through March for the first time since 2004 and inflation accelerated to 15.6 percent in May, the highest rate in more than six years, as manufacturers struggled to import raw materials and equipment.
The naira will probably trade in a range of 280 to 350 against the dollar after the central bank implements its decision, analysts at Johannesburg-based Rand Merchant Bank said in a note on Wednesday before the announcement.
“We are optimistic that the steps we have taken today will further deepen the market and help get foreign exchange into the market. I will say to Nigerians be calm, there is no need to worry, everything is well,” Emefiele said.
