The naira falls as Nigeria eases currency regulations.

Nigeria’s naira has hit a new low as officials prepare to phase down currency regulations that have hampered Africa’s largest economy for years.

According to statistics provided by Bloomberg, the naira fell 21% to 600 per dollar, the worst drop since a devaluation in 2016. The stock market and government bonds rose as investors welcomed the prospect of the next in President Bola Tinubu’s series of reforms.

The central bank is debating whether to allow the currency to trade more freely, a senior banking official told Bloomberg on Wednesday, declining to be identified since the discussions are confidential. Currency directives might be announced later today or tomorrow, according to the source.

The central bank didn’t immediately respond to requests for comment.

The supply and demand equation

Another senior banking official stated that local banks have already been informed that the naira’s exchange rate versus the dollar will be controlled by supply and demand rather than the central bank in the future. Bankers had predicted a significant depreciation of the naira in the official spot window.

It was unclear if the government would allow the currency to move freely or implement a more limited move through depreciation with certain regulations still in place. Regardless, economists welcomed the data as another move in the right way for the economy since Tinubu’s victory.

“This is absolutely the right decision and a reality check that the country needs, highlighting how the new leadership means business,” said Simon Quijano-Evans, chief economist at London-based Gemcorp Capital Management.

Nigerian government bonds maintained gains made earlier this week following the surprising resignation of central bank Governor Godwin Emefiele. Emefiele’s dismissal adds to indications that Tinubu is moving rapidly to reverse policies responsible for the economy’s demise. The 2051 notes gained 2 cents on the dollar to 74, up from roughly 70 last week.

The Nigerian stock exchange’s benchmark index increased by more than 3%. Quijano-Evans stated in a note that future adjustments in economic policy could assist improve output in the long run by freeing up budgetary resources and helping the economy function more smoothly.

The black market

“In the medium term, if the government is able to combat corruption, the increase in efficiency should also help revive growth,” Quijano-Evans added.

The naira’s liberalisation under a new presidential government was predicted, but the magnitude of the decrease on Wednesday surprised Mark Bohlund, a senior credit research analyst at REDD Intelligence.

“My expectation was for a smaller downward shift now and the naira to end up closer to NGN750/USD by the end of the year,” said Bohlund. “The depreciation will assist the federal government in better balancing its books, as it remains heavily reliant on USD-linked oil revenue while spending is in naira.”

Under Emefiele, Nigeria’s central bank supplied the US dollar to companies and people through various windows at closely regulated rates with low liquidity.

This drove many people to the illicit market, where the dollar traded freely but at a 60% premium to the official rate.

Wale Edun, a powerful member of Tinubu’s advisory council, told Bloomberg by phone on Monday that currency unification was “imminent.” Since Emefiele’s dismissal on Friday, Folashodun Shonubi, the bank’s deputy governor in charge of operations, has been acting as governor.

Bloomberg