Nigeria’s naira slumped 23 percent against the U.S. dollar on Monday in tentative interbank trading after central bank removed its currency peg, Thomson Reuters data showed.
The naira traded just twice at 255 against the dollar, and less than $1 million had changed hands by 11:00 a.m. (1000 GMT), as dealers said they were nervous about foreign exchange liquidity under the new system.
Monday’s rate was sharply weaker than the 197 peg the central bank had been maintaining for the past 16 months, then abandoned last week in a bid to alleviate chronic forex shortages.
But it was still off the 350 seen on the parallel market since a slump in oil revenues started hammering public finances and foreign currency reserves.
Naira market trading will close at 14:00 pm (1300 GMT).
Foreign investors and economists had called for months for a naira devaluation as the forex shortages choked economic growth and led to widespread capital flight.
The Central Bank said last week it would abandon the peg in a “managed float”. The median forecast from 10 analysts surveyed by Reuters suggests it will could trade on Monday as weak as 300 per dollar.
Africa’s biggest economy, which contracted by 0.4 percent in the first quarter, faces its worst crisis in decades after the decline in oil prices since 2014 and last year’s introduction of a currency peg.
With a likely sharp fall for the naira, Nigerian products will become relatively cheap and imports more expensive, which should stimulate the domestic economy but will likely light a fire under already rising inflation.
“The new system should reduce the shortage of FX in the economy and – in the long run – reduce strains in the balance of payments by discouraging imports and boosting export competitiveness,” Capital Economics’ John Ashbourne said.
“But the new system certainly does not mark the end of Nigeria’s economic problems.”
Nigeria, Africa’s largest crude exporter, has resisted devaluing its currency for more than a year despite other major oil producers, including Russia, Kazakhstan and Angola, allowing currencies to fall after crude prices collapsed.
