Emefiele’s New Robes

Emefiele has finally woken up from his Buhari induced stupor and decided to float the naira, allowing the exchange rate to be determined by the market. This is something everyone with half a brain has begged him to do for over a year now. It only took getting kicked out of every emerging market bond index there is, losing all investor interest, dubious capital controls, decimation of our reserves, crash in oil revenue due to low crude prices  the Niger Delta Avengers, the highest inflation rate in 6 years and the first negative GDP growth in God knows how long before he finally did the right thing. And the fear now, of course, is that it might be too late to steer course away from the cliffs. An economy is like an ocean liner: it turns slowly over a long period. 

For now, the naira fowards market is setting the price for the naira at around N333.00 per dollar. That’s still lower than the N365 it’s trading at today in the parallel markets but it’s a huge cry from the artificially placed N199 rate from the CBN. In the long run, we can focus, not on government FX earnings but on our economic fundamentals in order to maintain a positive exchange rate, so it’s a positive development. The Nigerian stock market rose 3% on that sentiment, while our 2023 bonds rose 0.55% to a 7.1% yield. 
In the short term though, the market will experience a lot of volatility as the pressures caused by CBN’s long distortion of the markets and economy gets worked out. Inflation, fx supply, a bunch of issues will probably crop up. There’s also issued around selecting the dealers who are approved to supply FX. So we’ll see how things go in the next few months. 

I hope doing the right thing is enough but one does not simply hold misguided policy for so long without suffering consequences. We’re not out of the woods yet. 

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