The Central Bank of Nigeria (CBN) on Wednesday, June 15, 2016 announced a new foreign exchange policy. This policy mainly deals with how the naira will exchange with the dollar going forward.
This is how the new policy will affect you as a person
Before this new policy, anyone that wanted to buy dollar from the CBN will get it at between N197 to N199 to the US$ which was the official rate from the CBN. But few people had access to this official rate. For example, airlines have about US$600 million stuck with the CBN because of the CBN’s inability to give them all the dollars they required in respect of the tickets they have sold. With this new policy, the CBN is abandoning the official rate of N197/N199 to the US$. Under the new system the exchange rate of the US$ will now be purely be determined based on demand and supply.
This means that the amount of naira needed to buy dollar is likely to be closer to the current exchange rate of the dollar in the black market. So possibly the official exchange rate of the dollar may be somewhere above N300 starting from Monday, June 20, 2016.
The immediate consequence of this is that some prices of some items, especially imported items will go up. But this price rise is not expected to be significant, since the beginning of the year, the prices of many of these items have already gone up as most importers have been getting their foreign exchange from the parallel black market.
The exchange rate of the naira in the black market, which currently stands at about N370 is likely to get worse initially then possibly improve. This is because, with the official rate now more attractive, many Nigerians and foreign investors will start looking at investing in Nigeria again. This will increase supply of dollar in the official market and reduce demand in the black market. So do not be surprised if you see the naira gaining strength in the black market in the next few days.
Watch the stock market. You are likely to see prices of stocks start rising significantly for the rest of the year. Foreign investors who abandoned the capital market because of our wrongheaded foreign exchange policy will now return and invest in the market. So you will likely see significant gains in the prices of stocks. If you want to take advantage of it, buy now.
Nigeria will now be able to borrow more money from the International Monetary fund (IMF) and the Eurobond market to fund the 2016 budget, and execute capital projects like roads and electricity.
Civil servants can smile again as allocation to states will go up again in naira terms and governors can once more pay salaries, although with naira that has less value. This means, we are likely see agitations for salary increases intensify.
