After wide consultations with the financial system mainly represented by the bankers’ committee, the Central Bank of Nigeria, CBN has finally neglected its flexible Forex policy that proposed a dual market system for the economy.
The CBN’s Governor, Godwin Emefiele, at a briefing held in Abuja released details about the single Forex policy.
According to the CBN “CBN shall operate a single market structure through the autonomous/inter-bank market i.e. the Inter-Bank Foreign Exchange Market with the CBN participating in the FX market through interventions (i.e. CBN Interventions) directly in the inter-bank market or through dynamic “Secondary Market Intervention Mechanisms”.
“Furthermore, to promote the global competitiveness of the market, the inter-bank FX market will be supported by the introduction of additional risk management products offered by the CBN and Authorised Dealers to further deepen the FX market, boost liquidity and promote financial security in the market. Additionally, to further improve the dynamics of the market, the CBN shall introduce FX Primary Dealers, FXPDs.”
“These shall be registered Authorised Dealers designated to deal with the CBN on large trade sizes on a two-way quote basis. amongst other obligations as stated in the FXPD Guidelines – (Guidelines for 4 | P a g e Primary Dealership in FX Products). The FXPDs shall operate with other Authorised Dealers (non-FXPDs) in the Inter-bank market.”
Emefiele concluded that the system would be implemented from June 20, 2016.
Nigeria’s economy has been facing serious challenges after the crash in global oil prices led to an all time collapse in government revenue. The eventual drought in the supply of US Dollars into the country’s import-dependent economy caused serious volatility in the economy.
The stock market has also taken a serious beating since the revenue crisis started. The single Forex policy will be a relieve to the markets. Perhaps investors on The Exchange expected a favourable outcome, the market surged by 317bps today. However, the market is down by 2.62% year-to-date.
End of trading day commentary by Stanbic IBTC Stockbrokers concluded that “Market sentiments were considerably lifted towards market close today after the CBN governor announced the details of the flexible exchange rate framework. The market viewed this as a positive and the locals were on hand to take positions. It is expected that a freer market will attract foreign inflows into the Equity market but we are of the opinion that foreign investors will watch the market closely following the implementation before making any major investment decisions. Overall, we believe this is good for the market and we expect another positive close to market activities at tomorrow’s trading session.”
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