The naira plunged 40 percent in value on Monday after the Federal Government allowed the currency to float, with businesses welcoming the move as overdue to revive Africa’s biggest economy.
Nigeria had pegged the naira to the dollar at 197-199 since March 2015, even as other oil exporters let their currencies devalue in the wake of plummeting global crude prices, but limited access to foreign currency strangled imports and growth.
President Muhammadu Buhari has previously said he would not “kill the naira” by letting slide in value, but the Central Bank of Nigeria (CBN) last week announced the currency would now be “purely market-driven”.
Analysts believe the naira will settle at about 250 at the inter-bank market moderated by the CBN, compared with 350 to the greenback on the black market.
The naira had crashed to 370 to the dollar on the parallel market before last Wednesday’s announcement that market forces will prevail amid a backlog of demand estimated at $4 billion by Nigerian economic analyst SBM Intelligence.
Private foreign exchange dealers stopped trading Monday as people wanting to buy foreign currency began bidding at banks, with the naira’s new value to be decided by demand with no initial intervention, Central Bank officials said.
The parallel market rate dropped to between 315 and 330 to the dollar.
“This is good news for the majority of Nigerians,” Ayo Teriba, CEO of Economic Associates consultancy, said of the devaluation. “The biggest gain is on the appreciation of the parallel market because the parallel market devaluation has destroyed domestic activities, with prices of local goods skyrocketing.” Imported goods also have doubled and trebled in price.
“The scrapping of the fixed exchange rate will reduce speculation and hoarding of dollars,” said Tope Oluwaleye, of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA).
Those with dollars would be encouraged to part with it and make the currency available for other businesses and importers, he told AFP.
“Businesses will be able to plan. The economy that has been strangulated because of scarcity of foreign exchange will come back to life, jobs will be created and productivity will increase,” he added.
