June 14, (THEWILL) – The Nigerian Naira lost 40 percent of its value Wednesday, the first day it was floated at the I&E Window of the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX), signaling a slope towards official devaluation.
The CBN had Wednesday notified banks that the rate cap has been removed at I&E Window, introduced in April 2017, to allow Nigeria’s foreign exchange markets to operate a freely floating exchange rate regime
This ends the years of CBN-controlled exchange rate system as the apex bank has allowed Deposit Money Banks (DMBs) to sell dollars, euros and pounds at market-determined rates.
By this, market forces take the driver’s seat in the nation’s volatile forex market notorious for its multiple windows that enthrone arbitrage and subdue transparency.
It also suggests that the CBN may no longer be obliged to commit huge resources towards hedging the Naira against a fatal free fall.
At the I&E window on the FMDQ platform Wednesday, the Naira closed at N664.04/US$1 as against N474/US$1 on the previous day’s trading Tuesday, June 13, 2023, a value drop of 40 percent.
However, the CBN has retained the I&E rate of N463.38/US$1 on its website as of Wednesday, June 14, 2023, a move analysts say arms the apex bank to maintain that Africa’s largest economy has not officially devalued its currency.
Analysts believe that the development will bring the needed transparency in the forex market and address the scarcity that has put pressure on the local currency while the monetary authority embarks on the arduous task of unifying the multiple exchange rates.
They agree that rates merger will lead to a depreciation of the local currency in the official market, but the parallel market should appreciate.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
