In a significant development, Nigeria’s central bank has taken steps to unify foreign exchange (FX) trading, resulting in the devaluation of the official Naira rate by over a third.
The central bank’s decision was announced at the conclusion of the trading day in New York, marking a shift towards liberalizing FX trading.
According to a statement issued by the central bank, all FX trading will now be conducted through its Investors and Exporters (I&E) window, and the “willing buyer, willing seller” model will be reintroduced.
Under this new framework, the operational rate for all government-related FX transactions will be determined based on the weighted average of executed trades from the previous day.
Additionally, order-based, two-way quotes cleared by a central counter-party will be reintroduced.
Following the announcement of the new FX rules, Nigeria’s dollar-denominated sovereign bonds experienced significant gains during the session.
A bond with a maturity date in 2033 saw an increase of 2.4 cents, reaching 78.625 cents, the highest level in almost five months.
Jeff Grills, the head of emerging market debt at Aegon Asset Management, commented on the positive impact of the currency devaluation and unification, stating, “Devaluing and now unifying the currency are very positive, and you have seen a positive reaction in bonds.”
He further added that these measures are “all generally positive for Nigerian assets.”