Tags: AF | Nigeria | Floating Naira

Naira Plummets as Nigeria Floats Currency for 1st Time

Monday, 20 June 2016 01:00 PM

LAGOS, Nigeria (AP) — Nigeria's currency plummeted Monday, losing more than a third of its value as the government floated the naira for the first time in the history of the oil-producing nation.

The move was forced by a spiraling economic crisis and massive shortage of foreign exchange created by slumping oil prices and aggravated by President Muhammadu Buhari's 16-month-long insistence that the Central Bank defend the naira at a fixed rate of 197 to the dollar. Other oil producers like Angola and Venezuela devalued months ago.

Banks were selling dollars at 270 naira on Monday morning.

The naira had crashed to 370 to the dollar on the parallel market before last Wednesday's announcement that market forces will prevail amid a backlog of demand estimated at $4 billion by Nigerian economic analyst SBM Intelligence.

Private foreign exchange dealers stopped trading Monday as people wanting to buy foreign currency began bidding at banks, with the naira's new value to be decided by demand with no initial intervention, Central Bank officials promised.

The parallel market rate dropped to between 315 and 330 to the dollar.

"This is good news for the majority of Nigerians," Ayo Teriba, CEO of Economic Associates consultancy, said of the devaluation. "The biggest gain is on the appreciation of the parallel market because the parallel market devaluation has destroyed domestic activities, with prices of local goods skyrocketing." Imported goods also have doubled and trebled in price.

Inflation is soaring at nearly 16 percent this month, and analysts say it will get worse before it slows down.

Experts said the new currency policy should halt speculation by some of the favored few who had access to "cheap" dollars.

"We are optimistic that the days where the majority of Nigerians suffer for the benefit of a few as a result of monetary policy are nearing their end," said SBM Intelligence.

The parallel market will retain relevance as long as the Central Bank maintains a ban on buying dollars from banks for imports of 41 restricted items, a move to boost domestic production and reduce the West African nation's heavy reliance on imports.

The devaluation is a boon for MTN, Africa's largest telecommunications company, which this month negotiated a deal to pay a fine of 330 billion naira, now effectively discounted by about 30 percent.

Among losers are companies with billions of naira trapped in Nigeria that they were not allowed to repatriate. Foreign airlines are holding naira from air tickets sold at the old official rate equivalent to $600 million before the devaluation.

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Nigeria's currency plummeted Monday, losing more than a third of its value as the government floated the naira for the first time in the history of the oil-producing nation.The move was forced by a spiraling economic crisis and massive shortage of foreign exchange created...
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2016-00-20
Monday, 20 June 2016 01:00 PM
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