The Central Bank of Nigeria Removes Caps on Naira Payout Rates
The Central Bank of Nigeria (CBN) made an announcement on January 31 that it has removed the caps on naira payout rates for international money transfer operators (IMTOs). This move, aimed at further liberalizing the foreign exchange market, eliminates the previous restriction that limited IMTOs to quoting rates not exceeding the previous day’s exchange rate by more than 2.5%. The CBN’s decision comes amidst discussions about the stability and value of the naira in the official foreign exchange market.
Effects of the Previous Policy Restriction
The previous caps on naira payout rates were implemented as a precautionary measure to mitigate the risk of rapid depreciation of the naira. However, instead of achieving the desired effect of liberalizing the market, it led to an increase in dollars being traded on the parallel market. This resulted in a wider gap between the naira’s parallel and official exchange rates, with the naira reaching a new low against the US dollar in late January.
The Naira’s Marginal Recovery and Speculation
Following the removal of the caps on naira payout rates, the naira saw a more than 8% gain against the dollar on February 1. Some analysts speculate that this surge is directly correlated with the policy change by the CBN. Additionally, there were reports of licensed foreign exchange dealers planning to cease operations around the same time as the naira’s recovery.
Hot Take: The CBN’s Policy Change and Its Impact on the Naira
The Central Bank of Nigeria’s recent decision to remove the caps on naira payout rates has sparked a surge in the naira’s value against major currencies. While there were concerns about the naira’s depreciation and the effectiveness of the previous policy, the new liberalization measures seem to be contributing to the naira’s recovery. It remains to be seen how this policy change will impact the overall stability and value of the naira in the foreign exchange market.
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