Following the Central Bank of Nigeria's new flexible Foreign Exchange rate policy, the Nigerian currency, the naira has begun to reap the benefit significantly against the United States Dollars.
Just yesterday, a day after the Central Bank of Nigeria released the much-awaited foreign exchange market framework., the local currency gained N12, rising from 367 to 355 against the United States dollar at the parallel market.
Forex dealers and analysts said the naira-dollar exchange rate, which closed flat at 367 on Wednesday, started reacting to the new policy following a rise in the supply of the greenback at the parallel market on Thursday, Punch Newspaper reports
The International Monetary Fund on Thursday said it welcomed the decision by the CBN to abandon its currency peg and adopt a flexible exchange rate policy, saying this was important to reduce fiscal and external imbalances.
The CBN had said on Wednesday that a market-driven foreign exchange market would commence on Monday, in the process abandoning the peg of N197 to the dollar that it had supported for 16 months.
Experts, who spoke to our correspondent on Wednesday, lauded the CBN for its courage to implement the market-determined exchange rate policy, saying it would bring down prices and eliminate market distortions.
Traders said on Thursday that the naira would likely fall next week as the country switches to a flexible and market-driven exchange rate policy.
Analysts also said that the naira might slide to a record low when the new open-market foreign currency trading commenced on Monday.
“We are expecting an initial wide depreciation of the naira at the official window, but the rate could stabilise at around the present black market rate of 370, depending on how much dollars the central bank will be willing to push into the market,” a senior trader told Reuters.
However, the CBN has said it is “reasonably optimistic” the naira will settle at around 250 to the US dollar, according to Reuters.
While forecasting that that naira will initially weaken against the greenback following a flotation on Monday, the CBN Governor, Godwin Emefiele, said the local currency would gain significantly over time.
Quoting a letter to President Muhammadu Buhari by the CBN governor was said to have noted that the naira would settle around 250 against the greenback.
“I must assure Your Excellency that we are indeed reasonably optimistic that at some point, the rate will settle around 250 naira,” Emefiele was quoted to have written by News Agency of Nigeria.
The letter, which briefs Buhari on the foreign exchange plan, says it could take three to four weeks to clear a $4bn backlog of foreign exchange demand.
Credit: Punch Newspaper