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Nigeria’s dollar bonds rallied by over 3% across the curve with the central bank moving to phase out currency controls and liberalize trading of foreign exchange. With the exchange rate set to be free, the naira slid 29% to close yesterday’s trading session at 664 per dollar. To start with, the central bank fixed the rate it sells dollars to exporters and investors at 610.20 naira, a 22% devaluation from Tuesday’s price. The central bank expects to see a sharp depreciation in the currency going forward as the exchange rate will be determined through supply and demand. The central bank said all FX trading would now take place at an “Investors and Exporters (I&E) window”. Here, the rate at which all government-related FX transactions will be executed is the weighted average of the preceding day’s executed trades. Two-way quotes will be cleared by a central counterparty and traders can see bid-ask spreads and order books.
Analysts viewed the move as a strong positive after having criticized the central bank’s unorthodox policies that involved allowing a complex regime of multiple exchange rates. The ousting of its central bank governor Godwin Emefiele recently provided optimism of a transformation in Nigeria’s exchange rate policy. Jeff Grills, head of EM-debt at Aegon Asset Management said, “Devaluing and now unifying the currency are very positive and you have seen a positive reaction in bonds”.
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