CBN finally succumbs, to allow forex rate be 'market-driven'

Reports have surfaced showing that the Central Bank of Nigeria (CBN) has announced that it will allow the naira exchange rate to be market-driven, hence setting the stage for a devaluation of the Naira when the new system takes effect on June 20, 2016.

According to a Bloomberg report, the CBN will select a group of about 10 primary dealers through which the naira will be traded ensuring that there will be only one exchange rate, with the CBN intervening in the market "as the need arises," CBN Governor Godwin Emefiele said, according to the report.

“We’re talking about an open, transparent two-way system. It’s intended we don’t have speculators and rent-seekers. I don’t expect that any other exchange rate will be recognized,” said Emefiele.

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Three-month non-deliverable naira forward contracts increased as much as 9.5 percent to a record N333 per dollar following Emefiele's announcement, implying that traders expect the currency to trade at that level in the market, compared to the CBN current official rate of N199.

“It’s probably the best that the markets could have hoped for,” said Ridle Markus, a Johannesburg-based analyst at Barclays’ Africa unit, according to the Bloomberg report. “It certainly seems like it will be a normal, free-floating currency. That would be positive.”

Emefiele, and President Muhammadu Buhari, have been under pressure for more than a year to devalue the Naira, just as other oil-producing countries including Russia, Kazakhstan, and Angola, have done, due to a drop in crude oil prices since mid-2014 to about $50 a barrel.