Forex Policy: IMF Lauds CBN, Naira Appreciates

Oyetunji Abioye
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.”