CBN Takes Risky Bet On Free-Floating Naira

The naira hit a new low of N755 per dollar on Wednesday, June 15, 2023, at the investors and exporters (I&E) window, after the Central Bank of Nigeria (CBN) directed commercial banks to sell foreign exchange (forex) freely at market-determined rates.

The I&E window is the country\’s official forex window, and it is where forex is traded between authorized dealers and authorized foreign investors. The CBN had previously been selling forex to commercial banks at a fixed rate of N410 per dollar, but it has now abandoned this policy and allowed the market to determine the exchange rate.

The decision to allow the naira to float freely is a major policy shift by the CBN, and it is likely to have a significant impact on the Nigerian economy. A weaker naira will make imports more expensive, which could lead to inflation. However, it could also make exports more competitive, which could boost economic growth.

The CBN has said that it will continue to intervene in the forex market to smooth out volatility, but it is unclear how much intervention it will do. The market is likely to be volatile in the near term, as businesses and investors adjust to the new policy.

The CBN\’s decision to allow the naira to float freely is a sign that the central bank is running out of options to manage the currency. The naira has been under pressure for several years, and the CBN\’s fixed exchange rate policy has been largely ineffective in preventing its depreciation.

The CBN\’s decision is also a sign that the Nigerian government is under pressure from businesses and investors to take steps to address the country\’s economic problems. The naira\’s depreciation has made it more difficult for businesses to import goods and services, and it has also made it more difficult for investors to repatriate profits.

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The CBN\’s decision to allow the naira to float freely is a gamble, but it is a gamble that the central bank believes is necessary to address the country\’s economic problems. The market will be watching closely to see how the CBN manages the forex market in the coming months.

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