Naira positive to new FX policy, closes stable

The naira yesterday responded positively to the Central Bank of Nigeria (CBN) newly introduced single foreign exchange market as it traded stable against the US dollar at the autonomous and parallel market.

The CBN yesterday released the revised guidelines on the operations of the Nigerian Inter-Bank FX market towards the liberalisation of the market.

Godwin Emefiele, CBN governor, who addressed journalists in Abuja yesterday, said the exchange rate will be purely market driven, operating on a single market structure – the Interbank window only, adding that the CBN will intervene from time to time in the market either to buy or sell dollars.

Consequently, the local currency yesterday closed at N365 and N367 against the greenback at the autonomous and parallel markets respectively.

Jude Monye, president, Risk Managers Association of Nigeria (RIMAN) said the pronouncement came at an opportune time for the market by providing assurances for the clean-up of all pent-up foreign exchange demands.

“Under this policy pronouncement, exchange rate will be purely market driven, operating in a single market structure (the Interbank window only) whereby the CBN will participate as buyers/sellers in the Interbank window as conditions dictate. This implies that CBN’s interventions will be limited to ‘primary dealers’ only”, he said.

“Another very interesting aspect of the policy is that it introduces a global perspective to the market that is the futures market. This market will inevitably improve liquidity in the system and deepens the FX market”, Monye said in an emailed response to BusinessDay.

Razia Khan, managing director, chief Economist, Africa, Global Research, Standard Chartered Bank, said, “broadly speaking, the abandonment of Nigeria’s currency peg which had served the economy so poorly is good news.  It should means that the FX rate acts as more of a buffer to external shocks in the future.  But what is still unclear at this point is exactly how the FX market will work.  There is plenty still to be clarified, and plenty that will be tested on Monday when interbank trading resumes.

“In particular, detail on how the backlog of FX demand will be dealt with is still very much needed”, she said in an emailed response to BusinessDay.

Aminu Gwadabe, acting president, Association of Bureau De Change Operators of Nigeria (ABCON) said the new policy which allows only 10 players as FX primary dealers will drastically reduce the number of currency dealers, adding that they cannot play effectively in terms of meeting the demand of end users.

He called on the CBN to come up with detailed clarification on the non-FX primary dealers. Gwadabe said naira will continue to weaken as it might take a month before the FX primary dealers begin operation.

HOPE MOSES-ASHIKE