Nigeria’s naira is expected to lose around a third of its value when market trading begins on Monday, bringing to an end the central bank’s much-criticised fixed exchange rate system.
The naira has been pegged at 197 to the U.S. dollar for the past 16 months but the currency trades at around 350 on the parallel market as a slump in oil revenues has hammered public finances and foreign currency reserves.
The central bank said last week it would abandon the peg in a “managed float” and the median forecast from 10 analysts surveyed by Reuters suggests it will trade on Monday in a range of 275 to 300 per dollar.
Nigeria’s commercial banks will set the first exchange rate of the naira versus the dollar when the new market opens, a senior banking source said.
Banks have asked customers to submit bids in recent days, in a sign trading will be market-driven and not simply dominated by speculative interbank dealing.
Foreign investors and economists have called for months for a naira devaluation as chronic foreign currency shortages choked economic growth and led to widespread capital flight.
Africa’s biggest economy, which contracted by 0.4 percent in the first quarter, faces its worst crisis in decades after the decline in oil prices since 2014 and last year’s introduction of a currency peg.
With a likely sharp fall for the naira, Nigerian products will become relatively cheap and imports more expensive, which should stimulate the domestic economy but also lift inflation.
President Muhammadu Buhari, who took office last year, has previously raised concerns about the inflationary impact that a weaker currency will have on Nigeria’s poor.
Nigeria, Africa’s largest crude exporter, has resisted devaluing its currency for more than a year despite other major oil producers, including Russia, Kazakhstan and Angola, allowing currencies to fall after crude prices collapsed.