June 20 (Lagos) - The Naira traded at 255 against the USD this morning as the Central Bank ended the currency peg. That was 27% below the official rate of 197 but still much higher than the 345 in the parallel markets.
Liquidity is going to remain a major problem because according to some estimates there is pent up demand for USD 4 billion in Nigeria. That makes up more than 15% of Nigeria's foreign exchange reserves. So until Nigeria attracts investment from abroad the issue of liquidity will remain.
The decline in Naira will adversely affect the asset quality of Banks in the country. It will lead to higher inflation and with interest rates sharply below the inflation in the Country, there are major issues ahead for the Central Bank.
Naira also weakened in the parallel market to 345 against the USD as compared to 335 on Friday.
It is not yet clear how the Central Bank will achieve the goal of one market for forex with continuation of import restrictions on the 41 items. Buyers of those 41 raw materials will have to look for alternative sources for forex and that means parallel markets.
reporting for easykobo.com on Monday, June 20 2016 from Lagos, Nigeria