Skip to main content

Chart Shows The Naira Is Now Officially Floating: A practical illustration of exchange rate


This is a practical illustration of what I shared. Earlier today I explained what Exchange rate meant and the types of exchange rate click here if you if you missed it
On June 20th, 2016 the Central Bank of Nigeria launched the new flexible exchange rate policy that ushered in the floating of the Naira effectively shutting down decade’s long policy of holding on strong to an exchange rate peg (fixed exchange rate).

Analysts expected the exchange rate between the Naira and the dollar to be determined fully by the market and not by the Central Bank or indeed any single force. Unfortunately, what we observed was that in the first two weeks of floating the currency, we saw nothing close to an exchange rate peg(fixed rate).

Understandably, the Central Bank will take some time to shake off its love for losing what was very dear to it. It had for years jealously help on to a pegged exchange rate so it obviously was yet to dawn on them that with this move, the Naira will face up to the wrath of free markets.

Things have changed since then and the Central Bank has eventually shaken off its hold. As the chart above depicts, it appears we have now seen an exchange rate that bears the hallmark of being a floating currency. The week of the 18th of July finally saw the CBN allow the market to take charge. Should we be happy about this?

We believe so. An exchange rate that is left to market forces will in the short run burn the Naira. However, that will give the CBN and the Government enough leverage to put policies and structures in place that will attract foreign investments. The government needs foreign investors to help kick start a revival of the economy.

The government needs to see a rebound in our external reserves (currently at $26billion) to the $40b levels and requires both growth in revenues and investments in the economy to achieve that. A market determined exchange rate helps push that mission closer to being achieved. In the long run we should be better off, provided we focus on economic policies that play to our core strength.
Join our BBM channel for instant updates : C0030863D

Comments

Post a Comment

Popular posts from this blog

Alert: Naira Gains A Massive 5% Against the Dollar

The exchange rate rebounded on Friday to close at N308 at the official interbank market. The local currency gained about 5.2% reversing the N325 it closed with on Thursday. According to reports, the gains was mostly due to a sale of forex by the Central Bank of Nigeria providing enough liquidity to meet the demand currently in the market. The naira has closed at an all time low of N364 to the dollar on Thursday following a surge in demand. The central bank has been selling dollars almost daily to boost liquidity and support the naira. Join our BBM channel for instant updates : C0030863D
Post a Comment
Read more

Emefiele gives insight, on what to Expect during his second term

The newly re-appointed Governor of the Central Bank of Nigeria, Godwin Emefiele, over the weekend enumerated the things intends to accomplish during his second term in office. Emefiele enumerated his plans while speaking to journalists at the University of Nigeria Nsukka (UNN), on the sidelines of the institution’s Special Convocation which took place on Friday. The CBN Governor gave delivered a lecture at the event. Driving down inflation: According to Emefiele, he intends to focus on policies that would drive down the country’s inflation rate, improve price stability, and drive economic growth. Emefiele’s Stern Warning: The CBN Governor further disclosed that he plans to work with his team to drive down imports and encourage exports. He also used the occasion to issue a stern warning to those who meddle with policies aimed at achieving economic stability, telling them that they will be caught and punished by law. Mr Emefiele’s second term plans came just a few days after ...
Post a Comment
Read more

How OPEC Agreed A 1.2Mbpd Production Cut

After months of wheeling and dealing, the member nations of the Organization of Petroleum Exporting Countries (OPEC) have finally agreed an average drop in production level of 1.2 million barrels per day, effective January. The agreement exempted Nigeria and Libya, but gave Iraq its first quotas since the 1990s, Bloomberg reports. Iran seems to be the greatest winner, as OPEC agreed for the country to raise output to about 3.8 million barrels a day as the country sought special treatment as it recovers from sanctions. However, Iraq OPEC’s second-largest producer, agreed to cut by 210,000 barrels a day from October levels despite its previous push for special consideration based on the urgency of its offensive against Islamic State. Saudi Arabia, which raised oil production to a record this year, will reduce output by 486,000 barrels a day to 10.058 million a day. The United Arab Emirates and Kuwait will reduce output by 139,000 barrels a day and 131,000 a day while ...
Post a Comment
Read more