Nigerian currency crashes to its lowest level ever trading at N760 to $1 as Tinubu administration monetary policy begins
The Central of Bank of Nigeria (CBN) allowed on Wednesday for the Naira to drop as much as 36% on the official market. This is the lowest level the Naira has fallen since it was introduced in 1973.
The Naira now exchanges N750 =$1 and N950 to £1, with bankers warning that the Naira could drop further until it finds its level within the next few weeks.
The new monetary policy comes on the heels of the suspension of the CBN governor Godwin Emefiele and his subsequent arrest and detention by the state security services on the orders of President Bola Tinubu.
Emefiele had been criticised for the multiple exchange rates that led to foreign currency shortages which made it hard for foreign investors to take out their money from Africa’s biggest economy.
Refinitiv Eikon data showed that removal of trading restrictions drove the Naira to a record low of N750 to the dollar.
“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.” Charlie Robertson, head of macro strategy at FIM Partners, said.
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 to the discomfort of majority who are subsisting on a minimum wage of N30k about $64 a month.
“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.
Akowe with additional reports from Reuters