The decision of the Central Bank of Nigeria, CBN, to float the country’s currency last week has received the backing of the International Monetary Fund, IMF, which once advised Nigeria to take such decision last year.
The CBN announced last Wednesday that the market will now determine the exchange rate for the Naira, a decision has caused mixed reactions.
Spokesman of the IMF, Gerry Rice, told newsmen that the Fund wanted to see how effectively the Naira exchange market functions once the new float system is put into effect from Monday.
“I think the announcement to revise the guidelines for the operation of the Nigerian interbank foreign exchange market is an important and welcome step,” Rice told reporters. “It will provide greater flexibility in that market, the foreign exchange market.”
Senior IMF officials, including Managing Director Christine Lagarde, have urged Nigerian officials to allow the naira to fall to absorb some of the shock to the economy from a plunge in oil prices and revenues.
OPEC member Nigeria is a major oil producer. IMF officials have said that Nigeria has not requested IMF financial assistance, but has been in consultation with the Fund on dealing with budget shortfalls.
“As we have said before, a significant macroeconomic adjustment that Nigeria urgently needs to eliminate existing imbalances and support the competitiveness of the economy is best achieved through a credible package of policies involving fiscal discipline, monetary tightening, a flexible exchange rate regime and structural reform,” Rice said.
“Allowing the exchange rate to better reflect market forces is an integral part of that.”
