Currency trades at N255 after CBN's 'managed float', experts project positive future

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June 20, 2016 1:16 PM

Monday's rate is sharply weaker than the N197 peg the CBN had put in place for the past 16 months, a move it abandoned last week in an attempt to alleviate chronic forex shortages.

Nigerian naira notes are seen in this picture illustration March 15, 2016. REUTERS/Afolabi Sotunde/Illustration/File Photo

The Naira slumped by 23 percent against the USDollar on Monday, June 20, 2016 in tentative interbank trading after the Central Bank of Nigeria (CBN) removed its currency peg, according to Thompson Reuters data.

Reuters reports that the Naira traded at N255/Dollar twice, with less than $1 million exchanging hands by 11am as dealers said they were nervous about forex liquidity under the new system.

Monday's rate is sharply weaker than the N197 peg the CBN had put in place for the past 16 months, a move it abandoned last week in an attempt to alleviate chronic forex shortages.

Still, the currency traded at way less than the N350/Dollar which had been quoted on the parallel market since a slump in oil revenues put a dire strain on public finances and forex reserves.

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The Naira market trading will close at 2pm.

For months, foreign investors and economists had called for the devaluation of the Naira as forex shortages hindered economic growth and led to extensive capital flight.

Last week, the CBN announced that it would abandon the N197 peg in a "managed float" of the Naira.

In the first quarter, Africa's biggest economy dipped by 0.4 percent and currently faces its worst crisis in decades following the decline of oil prices since 2014.

Despite the slump in the official value of the Naira, global ratings agency Moody's gave a credit positive thumbs up to the shift, saying that inasmuch as the CBN "is likely to continue to intervene," the system will “gradually eliminate any gap between unofficial exchange rates,” and help boost oil exporter's income, according to a report by the Financial Times.

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