Nigeria’s central bank may soon give bond and stock investors what they have been pleading for: a weaker naira.

Governor Godwin Emefiele announced after a meeting of the Monetary Policy Committee in Abuja, the capital, on Tuesday that a more flexible foreign-exchange system would be unveiled “in the coming days.” But he gave scant detail and left plenty of questions. Here are some answers:

What’s the problem?

Nigeria has held the naira at 197-199 per dollar since March 2015, even as other oil exporters from Russia to Colombia and Malaysia let their currencies drop amid the slump in crude prices since mid-2014. Foreign reserves dwindled as the central bank defended the peg, while foreign investors, fearing a devaluation, sold Nigerian stocks and bonds.

While President Muhammadu Buhari and Emefiele argued a devaluation would fuel inflation, that happened anyway: consumer prices accelerated at the fastest pace in six years in April as the black-market naira rate plummeted. To make matters worse, data released four days before the MPC meeting showed the economy contracted in the first quarter for the first time since 2004 as the dollar shortage curtailed manufacturing. That probably surprised policy makers, prompting the change of heart, according to Mathias Althoff, a fund manager at Tundra Fonder AB, which has about $200 million invested in frontier market stocks, including Nigerian banks.

What happens next?

While Emefiele didn’t specify what he meant by “greater flexibility,” analysts at Renaissance Capital Ltd. believe the central bank will allocate dollars at a fixed rate to strategic industries — like energy and agriculture — while letting the naira weaken in the interbank market, where everyone else would buy their foreign currency. The central bank may also try try to control the new interbank rate by imposing a trading band of about 5 or 10 percent around it, according to Althoff.

Will that satisfy investors and save the economy?

If the central bank doesn’t allow the naira to drop enough, foreign investors will continue to shun Nigerian assets, according to Althoff. The currency should trade at around 285-290 per dollar, according to Alan Cameron, an economist at Exotix Partners LLP. A devaluation won’t solve Nigeria’s structural economic problems — which include an over-reliance on oil exports — and may fuel inflation in the short term. But it would make Nigerian exports more competitive, curb imports and encourage foreign investment.

What are the pitfalls?

Most investors would prefer a fully-floating naira, yet doubt that Nigeria, which has always had currency controls of some sort, will take that option. And there are concerns it will be impossible for the central bank to ensure that only importers meeting its criteria will be able to buy foreign-exchange at the discounted official rate. Many analysts fear that in a nation U.K. Prime Minister David Cameron described as “fantastically corrupt,” access to the official rate will come down to political connections.

“The suggestion of a dual exchange rate, with the maintenance of the official window, is a concern,” Razia Khan, head of African research at Standard Chartered Plc, said. “This might lead to continued distortions in the market, ultimately with pressure on foreign-exchange reserves.”
What else should investors watch out for?

Buhari. He has made it clear that he, not Emefiele, is the person in charge of exchange-rate policy. The president is loath to allow the currency to drop unless he’s forced to and in February likened such a move to “murder.” He has yet to make any response to the MPC’s announcement. And while he is due to make a speech on May 29, the first anniversary of his coming to power, local press reports suggest he will focus on the government’s fight against corruption and Boko Haram’s Islamist insurgency.

The central bank has hinted at change before, only to do nothing. “The MPC has dangled the carrot of exchange rate reform, but without giving any details of what a reformed market would look like,” Cameron at Exotix said. “To the skeptics among us, this will simply sound like a re-hash of the same old material we’ve been hearing about since December 2015.”

http://investorsking.com/nigerian-currency-crisis-explained-what-we-know-and-dont-know/

Not more that 50 people are controlling the lives of 170 million Nigerians

God bless NIGERIA

.....

ibkgab001:
Not more that 50 people are controlling the lives of 170 million Nigerians

50 or so visionless people.

If I say join me now to rearrange the system, you will first ask what tribe I am.

Perhaps Nigerians deserve the type of leaders they get.

plaetton:


50 or so visionless people.

If I say join me now to rearrange the system, you will first ask what tribe I am.

Perhaps Nigerians deserve the type of leaders they get.

No, you assumed. Ask him first and see, trust me there are people ready, they just need right minds.

Oil money is varnishing but our governors are not ready to be independent of Abuja

Buhari God punish you oooo

I change naira on gtb card today 325# to $1

when will it end

Father God, let me have my visa ths wk IJN. amen. #i promise to cme bck aftr 3 dec.. Just gve me first!

Every policy is Nigeria designed to favour the elite. People like Dangote & others with conection will continue to buy dollar at 197 naira. Its indeed a crime to be poor in Nigeria, no wonder many of our youth have decided to either make it or die trying.

No doubt you are from a greedy tribe that claims someone's property even when God has already given you all mud that will benefit you and the whole generations ... If you are from that tribe trust me never will I support you because you all have the same blood component running in your vein

This choice is very hard,
so if I want to invest in agriculture, energy and infrastructure I will get dollar at 199 but if it's for travel 285 - 350
That's a way of forcing people to invest in this sectors, Well it's all good... But seeing the naira bleed is very painful,

we know

hmmm

The naira is falling. Why not just devalue the thing already

So its not Buharis fault

who also noticed that the air in burger has tripled

..

life is going to become even more harder for Nigerians.
If they devalue the naira the price of commodities will sky rocket

Kai bahari

Bubu dey talk now, I no dey hear wet in e dey talk, he put hot yam for mouth abi na d.i.c.k dey em mouth?

Buhari is a dullard!!

I love sundays. Xplain naira situation tire, it doesn't change much. China wil soon buy... I rest my case dia. Hapi sun/rainday especially to d Biafra people!

VIPERVENOM:
The naira is falling. Why not just devalue the thing already

If only you knew the consequences of your statement. Small scale business will just disappear

Mbok, hope still dey for the poor masses?

plaetton:


50 or so visionless people.

If I say join me now to rearrange the system, you will first ask what tribe I am.

Perhaps Nigerians deserve the type of leaders they get.

I swear you are from the Igbo tribe; I can easily perceive your reasoning. It is peculiar to your kinds.

Buhari won't kill us

Wailers won't be able to understand this, it's easier to blame buhari.

Just analyzing this scenario critically.

As at February 2015, this was where we are
https://www.nairaland.com/2166884/nigeria-6th-fastest-growing-economy

But thanks to the Dullard for rewinding us to a point of worthlessness!
All hail the Zombies!

ew