Following a directive from the Central Bank of Nigeria to abandon its currency peg for a flexible exchange rate policy, the naira devalued 22.7% against the US dollar on Monday as interbank market trading began, Thomson Reuters data revealed.
The naira traded at 255 against the US dollar, weakening from the 197 peg maintained by the central bank since president Buhari assumed office. The president on several occasions had refused to devalue the currency.
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Reuters further reported that on the booming black market however, currency dealers were quoting the naira in a spread between 325 – 345 to the dollar, a much firmer figure that when the new interbank trading commenced on Friday.
Economists largely expect the gap between the official rate and that of the black market to narrow as a result of the increased forex liquidity between banks, a move that should decrease demand from dealers on the streets.
The International Monetary Fund (IMF) last week 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.
The Central Bank sometime last 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.
“I think the announcement yesterday to revise the guidelines for the operation of the Nigerian interbank foreign exchange market is an important welcome step,” IMF spokesperson Gerry Rice told a news conference.