Naira CBN finally succumbs, to allow forex rate be 'market-driven'

The CBN will select a group of about 10 primary dealers through which the naira will be traded ensuring that there will be only one exchange rate, with the CBN intervening in the market "as the need arises".

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Nigerian naira notes are seen in this picture illustration March 15, 2016. REUTERS/Afolabi Sotunde/Illustration/File Photo play Nigerian naira notes are seen in this picture illustration March 15, 2016. REUTERS/Afolabi Sotunde/Illustration/File Photo
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Reports have surfaced showing that the Central Bank of Nigeria (CBN) has announced that it will allow the naira exchange rate to be market-driven, hence setting the stage for a devaluation of the Naira when the new system takes effect on June 20, 2016.

Central Bank Governor Godwin Emefiele speaks during the monthly Monetary Policy Committee meeting in Abuja play Central Bank Governor Godwin Emefiele speaks during the monthly Monetary Policy Committee meeting in Abuja, Nigeria January 26, 2016. (REUTERS/Afolabi Sotunde)

 

According to a Bloomberg report, the CBN will select a group of about 10 primary dealers through which the naira will be traded ensuring that there will be only one exchange rate, with the CBN intervening in the market "as the need arises," CBN Governor Godwin Emefiele said, according to the report.

Nigeria's President Muhammadu Buhari attends the opening session of the second Regional Security Summit in Abuja play Nigeria's President Muhammadu Buhari attends the opening session of the second Regional Security Summit in Abuja, Nigeria May 14, 2016. (REUTERS/Afolabi Sotunde)

 

We’re talking about an open, transparent two-way system. It’s intended we don’t have speculators and rent-seekers. I don’t expect that any other exchange rate will be recognized,” said Emefiele.

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Three-month non-deliverable naira forward contracts increased as much as 9.5 percent to a record N333 per dollar following Emefiele's announcement, implying that traders expect the currency to trade at that level in the market, compared to the CBN current official rate of N199.

Nigeria's Finance Minister Kemi Adeosun speaks at a news conference in Lagos play Nigeria's Finance Minister Kemi Adeosun speaks at a news conference in Lagos, Nigeria, April 9, 2016. (REUTERS/Akintunde Akinleye)

 

It’s probably the best that the markets could have hoped for,” said Ridle Markus, a Johannesburg-based analyst at Barclays’ Africa unit, according to the Bloomberg report. “It certainly seems like it will be a normal, free-floating currency. That would be positive.”

Emefiele, and President Muhammadu Buhari, have been under pressure for more than a year to devalue the Naira, just as other oil-producing countries including Russia, Kazakhstan, and Angola, have done, due to a drop in crude oil prices since mid-2014 to about $50 a barrel.

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