The Central Bank of Nigeria (CBN) recently announced significant reforms in the foreign exchange market, signaling a stride towards a market-driven exchange rate mechanism, potentially paving the way for a free float of the Naira.
The Naira strengthened against the dollar in the official market last weekend to close at N1,469.97/$1 as the ongoing demand pressure continued to erode the value of Nigeria’s currency.
Similarly, the naira appreciated marginally at the parallel forex market where forex is sold unofficially, the exchange rate quoted at N1,485/$1, an increase of 1.01 per cent against N1,500 it closed the previous day
The CBN’s recent circular outlines pivotal changes, including the discontinuation of a cap on the spread in interbank foreign exchange transactions and the lifting of restrictions on the sale of interbank proceeds.
Under the new guidelines, forex transactions will operate on a “Willing Buyer and Willing Seller” basis, ensuring more flexibility in the exchange rates determined by market forces.
This directive aims to foster a more transparent, competitive, and efficient market, where exchange rates are determined by the market participants themselves, without fixed rates imposed by the regulator.
The CEO of SD & D Capital Management, Mr Idakolo Gbolade said the recent measures by the CBN were aimed at devaluing the Naira against foreign currencies.
Gbolade, however, urged that the CBN must not be reactionary but critically examine their policies so far with a view of correcting areas that need adjustment.
“The continuous devaluation of the Naira is a result of demand outweighing supply due to scarcity. The CBN should evolve other ingenious measures to reduce the demand pressure.”