The local currency gained N12, rising from 367 to 355 against the United
States dollar at the parallel market on Thursday, a day after the
Central Bank of Nigeria released the much-awaited foreign exchange
market framework.
Forex dealers and analysts said the
naira-dollar exchange rate, which closed flat at 367 on Wednesday,
started reacting to the new policy following a rise in the supply of the
greenback at the parallel market on Thursday.
The International
Monetary Fund on Thursday said it welcomed the decision by the CBN to
abandon its currency peg and adopt a flexible exchange rate policy,
saying this was important to reduce fiscal and external imbalances.
The
CBN had said on Wednesday that a market-driven foreign exchange market
would commence on Monday, in the process abandoning the peg of N197 to
the dollar that it had supported for 16 months.
Experts, who
spoke to our correspondent on Wednesday, lauded the CBN for its courage
to implement the market-determined exchange rate policy, saying it would
bring down prices and eliminate market distortions.
Traders said
on Thursday that the naira would likely fall next week as the country
switches to a flexible and market-driven exchange rate policy.
Analysts
also said that the naira might slide to a record low when the new
open-market foreign currency trading commenced on Monday.
“We are
expecting an initial wide depreciation of the naira at the official
window, but the rate could stabilise at around the present black market
rate of 370, depending on how much dollars the central bank will be
willing to push into the market,” a senior trader told Reuters.
However,
the CBN has said it is “reasonably optimistic” the naira will settle at
around 250 to the US dollar, according to Reuters.
While
forecasting that that naira will initially weaken against the greenback
following a flotation on Monday, the CBN Governor, Godwin Emefiele, said
the local currency would gain significantly over time.
Quoting a
letter to President Muhammadu Buhari by the CBN governor was said to
have noted that the naira would settle around 250 against the greenback.
“I
must assure Your Excellency that we are indeed reasonably optimistic
that at some point, the rate will settle around 250 naira,” Emefiele was
quoted to have written by News Agency of Nigeria.
The letter,
which briefs Buhari on the foreign exchange plan, says it could take
three to four weeks to clear a $4bn backlog of foreign exchange demand.
Meanwhile,
currency dealers and bank chiefs will meet CBN officials today (Friday)
to discuss trading under the new interbank foreign exchange regime,
according to a treasury source.
Members of the Financial Market
Dealers Association met on Thursday to evaluate the new policy and
determine how trading would work, the treasury source told Reuters.
IMF
spokesman, Gerry Rice, told a weekly news briefing that the Fund wanted
to see how effectively the naira exchange market would function once
the new float system was put into effect on Monday.
“I think the
announcement yesterday (Wednesday) to revise the guidelines for the
operation of the Nigerian interbank foreign exchange market is an
important and welcome step,” Rice told reporters, adding, “It will
provide greater flexibility in that market, the foreign exchange
market.”