Nigeria had pegged the naira to the dollar at 197-199 since March 2015, even as other oil exporters let their currencies devalue in the wake of plummeting global crude prices, but limited access to foreign currency strangled imports and growth.
The naira fell Monday some 40 percent below the now-defunct dollar peg, to 280.50 to the dollar in late trading according to Bloomberg.
The naira plunges against the US dollar after Nigeriaâ€™s government scraps its fixed exchange rate Â©Pius Utomi Ekpei (AFP)
President Muhammadu Buhari has previously said he would not â€œkill the nairaâ€ by letting slide in value, but the Central Bank of Nigeria (CBN) last week announced the currency would now be â€œpurely market-drivenâ€.
Analysts believe the naira will settle at about 250 at the inter-bank market moderated by the CBN, compared with 350 to the greenback on the black market.
Nigeria is looking for a way out of an economic slump caused by the global fall in crude prices that has led to spiralling inflation, slowing growth, a weakened naira and forex shortages.
â€“ Businesses optimistic â€“
Businesses said the new policy will stimulate economic activity which has been stalled by an overvalued currency and a lack of foreign exchange, particularly for imports, because of capital controls.
â€œThe scrapping of the fixed exchange rate will reduce speculation and hoarding of dollars,â€ said Tope Oluwaleye, of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA).
Those with dollars would be encouraged to part with it and make the currency available for other businesses and importers, he told AFP.
â€œBusinesses will be able to plan. The economy that has been strangulated because of scarcity of foreign exchange will come back to life, jobs will be created and productivity will increase,â€ he added.
Oluwaleye said with increased productivity, the naira would appreciate in the long run, while Abolaji Odumesi, a Lagos-based drinks distributor, said flexibility would boost investment.
â€œWith a huge population, Nigeria is an investment destination. Investors will leverage on the size of the population to bring in their money,â€ he said.
â€œThere is going to be in-flow of investments into the economy and when this happens, importers will get forex at lower rates.â€
Princess Vicky Haastrup, chairman of the Seaport Terminal Operators Association of Nigeria (STOAN), said import activity had slumped almost 50 percent because of the forex shortages.
Fewer cargo ships had been docking at Nigeriaâ€™s main port in the Apapa area of Lagos in the first six months of this year, she said, but hoped business would now pick up.
â€œThereâ€™s going to be a positive impact on the Nigerian economy,â€ she added.
â€“ Shoppers hit â€“
But Odumesi, a former banker, said he was worried about the negative effects of the lower value of the naira on imports.
â€œThe immediate impact on the people is a rise in prices of goods and services since we do not produce things in this country. With devaluation, the cost of imports will rise,â€ he said.
Inflation in Nigeria soared to more than six-year highs of 15.6 percent in May â€” and is predicted to go higher in the coming months.
Local media on Monday put the backlog of forex demand by manufacturers and importers at some $4 billion (3.5 billion euros).
CBN spokesman Isaac Okorafor said on Monday the bank would â€œclear all the backlog of forex demand in the country through spot and forward settlementsâ€.
The move was designed to â€œengender confidence, ensure credible price formation and sustain the integrity of he Nigerian inter-bank forex marketâ€, he added.
Nigerian stocks reacted positively to the new policy and soared 7.4 percent in the three days after the announcement last Wednesday after two trading days in the red.
At the close of trades on Friday, the Nigerian Stock Exchange (NSE) All-Share Index stood at 29,247.27 points.
SOURCE: UK DAILYMAIL