– President Buhari reportedly approved flexible FX market bid
– The Central Bank of Nigeria commenced the implementation last week
Businessday has obtained the information that President Muhammadu Buhari has supported plans by the Central Bank of Nigeria (CBN) to move to a flexible exchange rate market.
The president reportedly gave his approval for the CBN to begin implementation of the flexible exchange rate system on June 2, last week.
It was learnt that one technique the new framework could be set up would be for the bank to re-introduce weekly auctions of an encoded amount, “ say $500 million per week.”
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As for where the naira could possibly see symmetry once the backlog of dollars are cleared and the CBN opens for trading, government officials say there could be an initial instability of the dollar/naira (USD-NGN) over a period of three or four weeks before receiving some form of stability around a midpoint speculated to be around N250 plus or minus a trading band to be set by the CBN.
Market traders also wait that a single FX window would be operated by the CBN to eradicate corruption as it seeks union between the new market FX rate and the black market rate
However, the concern in the market is that in the push by the government to limit volatility, it may focus on in and out movement of funds by foreign portfolio investors.
“ I have consistently argued in some of my past policy statements, the time has come for Nigeria to impose some form of restrictions on the inflow of foreign ‘investments’ into the country. This should be specifically aimed at discouraging short term portfolio inflows, ” Uche Chibuike, a member of the CBN monetary policy committee said.
Experts say any re-introduction of minimum holding period for bonds and equities will be perceived as negative by investors.
On his own part, Oluwatosin Ojo, head of Research at investment firm Cardinal Stone Partners, said: “The sentiments for equities will even be worse if a minimum holding period is introduced given the steps the NSE has been taking in the last few years to improve market structure and raise cross-border participation.”
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The naira crashed on June 8, Wednesday, to a new low of 371 against the United States dollar at the parallel market. It had closed at 361 per dollar on June 7.
President Buhari stood firm on naira devaluation, saying that he wouldn’t kill the currency.
