The International Monetary Fund (IMF) has welcomed the Nigerian Central Bank’s decision to abandon its currency peg for a more flexible exchange rate policy.
The international money lender says the development is important to reduce fiscal and external imbalances.
Nigeria’s Central Bank earlier this week announced the introduction of a new system (from June 20) which will lead to a significant devaluation of the naira which for 6 months had been pegged at 197 to a dollar.
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In a letter to the Nigerian president, the Central Bank governor said he expects the naira to settle at about 250 to the dollar.
IMF spokesman Gerry Rice told a weekly news briefing the Fund wanted to see how effectively the naira exchange market functions once the new float system takes effect next Monday.
“I think the announcement yesterday to revise the guidelines for the operation of the Nigerian interbank foreign exchange market is an important welcome step,” Rice said adding that “it will provide greater flexibility in that market, the foreign exchange market”.
Senior IMF officials have also urged Nigerian officials to allow the naira to fall to absorb some of the shock the economy has suffered as a result of the plunge in oil prices and revenues.
Nigeria had resisted debasing the naira for over a year despite other major oil producers allowing currencies to fall amid lower crude prices.
This is the third devaluation since November 2014 after Nigeria’s Central bank debased the naira by 8 per cent to 168 to the dollar and also raised the private sector Cash Reserve Requirement (CRR) to 20 per cent from 15 per cent.