The Central Bank of Nigeria (CBN) has directed banks to remove the cap on the investors’ and exporters’ (I & E) window of the foreign exchange market in a bid to float the local currency, according to a Thisday report.
The report stated that banks are now allowed to trade forex on the I & E window at any rate, subject to N1 spread.
Traders said the central bank had removed trading restrictions on the official market, which drove the naira to a record low of N750 to the dollar on the official market, down from Tuesday’s low of N477 to the dollar, Refinitiv Eikon data showed.
This was the first time since 2016 that the naira had recorded a big fall on the official market before the central bank introduced a managed exchange rate in 2017.
Charlie Robertson, head of macro strategy at FIM Partners, said: “A much needed devaluation which takes the currency from 50% overvalued to about 5-10% (cheaper). This should improve the current account and improve the long term investment climate.”
Owing to this development, the naira depreciated to around N700 to N750 to a dollar on the I&E window on Wednesday.
An influential member of President Bola Ahmed Tinubu’s advisory board, Mr. Wale Edun, on Monday, said the country would unify its exchange rates “imminently”.
“I would say it would have to be done within a quarter as rather than within a year,” he said. “ I think you’re talking, think quarters rather than years, that’s where I would put it.”
Foreign investors had flagged the forex restrictions as one of the biggest impediments to investing in Nigeria, which is Africa’s biggest oil producer.
Unifying the exchange rate and scrapping a costly subsidy were the most immediate tasks that Tinubu had faced. Delivering these within the first two weeks of his presidency has cheered the markets.
“What we are seeing is the removal of distortions created by inefficient pricing of foreign exchange and in the next few weeks we should start seeing the naira finding its level,” Bismarck Rewane, CEO at Financial Derivatives Company.
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