After Egypt abandoned its longstanding struggle to hold the value of its currency against the dollar, all eyes will be on the Central Bank of Nigeria (CBN) and President Muhammadu Buhari who have stubbornly refused to heed sound economic counsel to devalue the naira despite economic distortions from the current policy.
The Central Bank of Egypt said on Monday it would adopt a flexible exchange rate after devaluing the pound 13 per cent against the dollar.
The Egyptian Central Bank then offered $200m in an interbank auction at 8.85 Egyptian pounds to the dollar up from 7.73 previously, according to reports by Bloomberg.
Nicolás Maduro, Venezuela’s president, last month devalued the bolivar by 37 per cent in an attempt to boost its ailing economy.
Luis Costa, a currencies analyst at Citigroup in London, said Egypt’s “bold” devaluation could prove to be a model for other countries such as Nigeria.
“These countries can’t put off an adjustment in their currency any more. I know it can be painful, and we know there will be pressure on inflation, but a liberalised FX policy is the right way to go,” Costa said.
Pressure on commodity prices last year forced Kazakhstan and Azerbaijan to abandon their currency pegs, as the strain on their reserves to maintain a stable exchange rate became too great.
Nigerian reserves are down from a peak of about $42 billion in 2014 to $27 billion today.
Falling currency inflows have exacerbated an economic crisis in Nigeria leading to shortages of basic necessities and imported raw materials for factories.
