Nigeria’s central bank will let the market determine the naira’s rate in a new foreign-exchange window for portfolio investors as the nation struggles to revive its economy amid a dollar shortage.
Governor Godwin Emefiele told senior bankers that he would tolerate the naira weakening in the window, which starts today, according to a person who attended meetings with the policy maker over the past two weeks. While the currency may depreciate to its black-market level, the central bank probably won’t devalue the naira’s official rate, the person said, declining to be identified because he wasn’t authorized to speak publicly.
Nigeria has suffered from a dearth of foreign exchange after the price of oil, its main source of revenue, collapsed. While crude prices have since risen, some investors say the central bank’s capital controls and attempts to stop the naira from weakening are exacerbating the crisis. The nation’s economy contracted last year for the first time since 1991.
The naira has traded at around 315 per dollar on the interbank market since August. The currency’s black-market rate plummeted to a record 520 against the greenback in February, but recovered to 385 after the central bank sold more than $2 billion in forward contracts.
FX Window
The foreign-exchange window will be for bond and stock investors as well as exporters, the central bank said in a statement late on April 21. The FMDQ OTC Securities Exchange, the Lagos-based trading platform, will publish the rate for the window, know as Nigerian Autonomous Foreign Exchange Rate Fixing, or NAFEX, around noon each day.
The Abuja-based regulator said it “reserves the right to intervene” in the window. Read the full report here.