June 14, 2023

Nigeria’s Central Bank allowed the naira to drop as much as 36% on the official market on Wednesday, days after President Bola Tinubu suspended the central bank governor who oversaw much-criticised multiple exchange rates.

A web of multiple exchange rates under Godwin Emefiele had led to foreign currency shortages and made it difficult for investors to take out money from Africa’s biggest economy.

Traders said the central bank had removed trading restrictions on the official market, which drove the naira to a record low of 750 to the dollar on the official market, down from Tuesday’s low of 477 naira to the dollar, Refinitiv Eikon data showed.

This was the first time since 2016 that the naira had recorded a big fall on the official market before the central bank introduced a managed exchange rate in 2017.

Charlie Robertson, head of macro strategy at FIM Partners, said: “A much needed devaluation which takes the currency from 50% overvalued to about 5-10% (cheaper). This should improve the current account and improve the long term investment climate.”

The central bank did not immediately comment.

Tinubu inherited anaemic economic growth, record debt and shrinking oil output but he has promised to put the economy back on track and asked the public to support some painful decisions.

Foreign investors had flagged the forex restrictions as one of the biggest impediments to investing in Nigeria, which is Africa’s biggest oil producer.

Unifying the exchange rate and scrapping a costly subsidy were the most immediate tasks that Tinubu had faced. Delivering these within the first two weeks of his presidency has cheered the markets.

“What we are seeing is the removal of distortions created by inefficient pricing of foreign exchange and in the next few weeks we should start seeing the naira finding its level,” Bismarck Rewane, CEO at Financial Derivatives Company.

Nigeria’s sovereign dollar bonds surged as much as 2.7 cents on the dollar on news of the devaluation, with longer-dated maturities rising the most, according to Tradeweb data.

The local banking index earlier surged 23% to a more than 20-year high, as investors snapped up financial firms for the second day following Emefiele’s suspension.

REUTERS