Naira stabilises as investors cheer Nigeria currency shift, want more

The naira on Thursday maintained stability across foreign exchange market as Nigeria’s recent tentative steps to free up its currency, particularly via a new trading window, have gone down well with some adventurous stock and bond investors who are cautiously returning to the markets they fled two years ago.
Naira gained N2.86k to close at N363.00k per dollar on Thursday at the investors and exporters window. This is 0.78 percent higher than N365.86k quoted the previous day according to the data from the FMDQ.
The local currency closed stable at the inter-bank spot foreign exchange market at N305.85k, while it closed at between N365 and N367 per dollar at the black market.
Once considered one of the most promising emerging markets, Nigeria was hammered when it introduced draconian foreign exchange restrictions to counter the effects of the 2014 oil price crash, Reuters report.
These will take years to unwind, some analysts fear, while others are concerned the new trading facility could come under pressure if oil prices were to take another tumble, or trade through it could slow if Nigeria’s currency reserves run low.
The much-criticised move starved the economy of dollars, throttled foreign investment and plunged Africa’s largest economy into recession for the first time in more than 25 years.
But authorities have since tried to normalise the currency market and alleviate dollar shortages, most recently via the “Investors & Exporters FX Window”, which allows investors and traders to swap nairas for dollars at market-determined rates.
The new window adds to a confusing array of exchange rates. But it does seem to be succeeding in luring back some foreign funds, especially as the economy should return to growth soon and inflation is finally slowing.
“It is a very good thing. Obviously having multiple exchange rates is not an optimum situation yet, but it is moving towards a more realistic exchange rate,” said Oliver Weeks, economist at hedge fund Emso Asset Management. “This certainly makes the country more interesting.”
Under the new system, in place since April, the opening and closing naira/dollar rates are determined by a poll of authorised bank dealers. The NAFEX or Nigerian Autonomous Foreign Exchange Rate Fixing is set around noon and serves as a benchmark for derivatives such as forwards and futures.
Weeks said Emso has used the new mechanism successfully several times in the past six weeks.

Since the window’s launch, foreigners have swapped some $2.2 billion through it, according to the central bank although London-based Exotix Capital said many of the deals were likely small as some people test the new system.
Data from Lagos-based FMDQ OTC Securities Exchange, which hosts the window shows the naira NAFEX fix at nearly 369 per dollar, well below the official 305 rate the central bank had previously clung to.
Sola David-Borha, chief executive, Africa region at Standard Bank – one of the authorised dealers in the new window – said the window was working “reasonably well” and there was definitely liquidity.
“But the most important thing is that the central bank is willing to engage, and there is constant engagement now with bankers, investors and other stakeholders,” David-Borha said.