In a significant move, Nigeria's central bank has allowed the country's currency, the Naira, to plummet by more than 36% on the official market.
This decision comes shortly after President Bola Tinubu suspended the central bank governor, Godwin Emefiele, who had been criticized for the complex system of multiple exchange rates.
Under Emefiele‘s leadership, the multiple exchange rates had caused foreign currency shortages and hindered investors from repatriating funds from Nigeria, the largest economy in Africa.
Traders reported that the central bank removed trading restrictions on the official market, resulting in the Naira reaching a record low of 750 to the dollar, as shown by Refinitiv Eikon data.
This marked a significant decline from Tuesday's rate of 477 Naira to the dollar. Prior to the introduction of a managed exchange rate in 2017, this was the first major depreciation of the Naira on the official market since 2016.
Charlie Robertson, head of a macro strategy at FIM Partners, welcomed the devaluation, stating, “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 has not yet provided a comment regarding the devaluation.
President Tinubu inherited a struggling economy with low growth, high debt, and declining oil production. However, he has pledged to revive the economy and has called for public support in making difficult decisions.
Foreign investors had identified forex restrictions as a major obstacle to investing in Nigeria, a country known for its significant oil production.
The unification of the exchange rate and the elimination of costly subsidies were among the immediate challenges faced by President Tinubu. Accomplishing these tasks within the first two weeks of his presidency has bolstered market sentiment.
Bismarck Rewane, CEO of Financial Derivatives Company, expressed optimism, saying, “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.”
Following the news of the devaluation, Nigeria's sovereign dollar bonds experienced a surge of up to 2.7 cents on the dollar, particularly longer-dated maturities, according to Tradeweb data.
The local banking index also soared 23% to reach a more than 20-year high as investors continued to show confidence in financial firms, building on the momentum from Emefiele's suspension.