June 16 (Lagos) - Global markets received a pleasant surprise during trading on Wednesday following the Central Bank of Nigeria’s (CBN) unanticipated decision to de-peg the Naira against the Dollar in an effort to revive economic growth.
For an extended period, the incessant declines in oil prices have slashed the nation’s foreign exchange earnings, while the Dollar peg heavily eroded reserves which simply pressured the nation further. With fears mounting that a recession could be pending in Q2 amid depressed oil prices, the central bank’s move to de-peg the Naira may have mitigated some concerns, consequently boosting sentiment.
Although the Naira may be set to depreciate to unfathomable levels as the natural forces of supply and demand determine its true value on the free floating exchange, this could encourage domestic import substitution, while re-attracting foreign investors. As of now, the CBN will need to act with haste by hiking rates, as ongoing Naira weakness may punish Nigerians further while causing inflation to spiral uncontrollably.
As the nation finds normality in the future and slowly diversifies away from being oil-reliant, economic growth should improve and this should naturally boost the value of the Naira that is now on a free floating exchange.
reporting for easykobo.com on Thursday, June 16 2016 from Lagos, Nigeria
Source - Written by Lukman Otunuga – Research Analyst at FXTM
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