The Nigerian naira plunged the most in seven years on Wednesday as officials were said to be discussing letting it trade more freely against the dollar.
(Bloomberg) — The Nigerian naira plunged the most in seven years on Wednesday as officials were said to be discussing letting it trade more freely against the dollar.
The currency of Africa’s biggest economy dropped 21% to 600 per dollar as of 1:20 p.m. in London, the biggest decline since 2016 to the weakest on record, according to data compiled by Bloomberg.
A discussion on letting the currency trade more freely was ongoing at the central bank, a senior banking official told Bloomberg earlier on Wednesday, asking not to be named because the deliberations were private. Directives on the currency could be issued later today or latest tomorrow, the person said.
The central bank didn’t immediately respond to requests for comment.
Supply & Demand
Local banks are already being told that going forward, the naira’s exchange rate against the dollar will be determined through supply and demand rather than by the central bank, another senior banking official said. The bankers had they were expecting a strong depreciation of the naira at the official spot window.
Liberalization of the naira under a new presidential administration was expected, but the depth of the drop on Wednesday was surprising, said Mark Bohlund, a senior credit research analyst at REDD Intelligence.
“My expectation was for a smaller downward shift now and for the naira to end up closer to NGN750/USD by the end of the year,” Bohlund said. “The devaluation will help the federal government to better balance its books as it is still highly dependent on USD-linked oil revenue while spending is in naira.”
The naira has been falling to record lows since Friday after central bank Governor Godwin Emefiele was suspended by the nation’s new president, Bola Tinubu. Under Emefiele, Nigeria’s central bank offered the US dollar through several windows at tightly controlled rates, with little liquidity, to businesses and individuals.
READ MORE: Tinubu’s 15 Days Give Market a Glimpse of Nigeria Turnaround
That forced many to the black market, where the dollar traded more freely but at about a 60% premium to the official rate.
Wale Edun, an influential member of Tinubu’s advisory board, told Bloomberg by phone on Monday that the unification of exchange rates was “imminent.” Folashodun Shonubi, a deputy governor in charge of operations at the bank, has been acting as governor since Emefiele’s ouster on Friday.
(Updates prices; adds comment in sixth paragraph.)
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