Diaspora Remittances, Oil Firms To Stabilise Forex Market, Rates | Independent Newspapers Limited
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Diaspora Remittances, Oil Firms To Stabilise Forex Market, Rates

cbn; interbank, external resesrves
Posted: Jun 28, 2016 at 4:32 am   /   by   /   comments (0)

Bamidele Ogunwusi

Lagos – Financial analysts and market watchers in assessment of the newly introduced Nigeria Interbank Foreign Exchange (NIFEX) market by the Central Bank of Nigeria (CBN) have hailed the initiative of the regulator, saying it would stabilise the value of the naira and grow the economy from its current doldrums.

They told Independent that the performance of the market so far indicates that inflows from oil companies, exporters and Diaspora remittances, which are yet to hit the market, may provide stability for trading and rate of the local currency against the United States dollar in the weeks to come.

NIFEX, which allowed the exchange rate of the naira to be determined by the market forces of demand and supply, have had some positives in the economy since its introduction a week ago.

For instance, the Nigerian Stock Exchange All-Share Index rose by 3.17 percent, and market capitalisation added N279 billion to close higher at N9.579 trillion on the first day of the announcement. By the close of the week, that is, three days after, the stock market garnered a total gain of about 7.97 percent.

The CBN, which participated in the opening transaction helped clear the backlog of foreign exchange demands worth $4.2 billion to the excitement of the market and financial analysts.

The naira also reportedly firmed against the dollar, although this was only transient as it subsequently weakened against the greenback and had been under pressure after the initial strengthening.

However, experts have continued to assess the market since the implementation of the flexible foreign exchange policy, which is expected to among others, stabilise the exchange rate and woo foreign investors into the economy.

Amid the fluctuation in exchange and momentary gains and losses in the market, analysts see the trend as normal for take-off of any new policy.

They also believe that in the long run, the objective of the flexible exchange rate policy by the CBN would be achieved.

Ano Anyanwu, former Deputy Managing Director of Mainstreet Bank, said it is not strange that the new forex regime is experiencing some teething problems but added that things will soon normalise in due course.

His words: “These initial setbacks should be expected. One should expect some teething challenges with such a new policy involving a radical departure from what the players are used to”.

Executive Director, Corporate Finance, BGL Capital Limited, Mr. Femi Ademola, said the rate should moderate within the next three months.

According to him, “The flexible exchange rate is expected to be market determined hence whatever happened since Monday is what the market wanted. However, I will say that since it appears that CBN is the only supplier to meet the backlog of forex demand, the market is pricing it so high at the moment. If you check the bids submitted to the CBN by banks, some were as high as N382/$. This is as requested by the customers who just want the forex to complete their trades.

“With the clearing of the backlog of forex demand and the introduction of forward contracts and futures market, it is expected that future demand would be lower and even throughout the period as artificial demands moderate significantly. In addition as more forex supplies enter the market from IOCs, other exporting companies and foreign investors, the rate is expected to moderate and probably stabilise around N250/$ in the next 3 months.”

However, holding a different view on the commencement of the new forex regime, Chief Executive Officer, Global Analytic Derivatives Consulting Ltd, Tope Fasua, said, “We have observed the shaky start to the new policy.”

But, he added, “It was quite remarkable that the CBN was able to clear the backlog of $4 billion on the first day – even though a large portion of that was cleared using forward markets of up to 60 days as reported.”

“For me, we had no choice again but to go down this route. We hope the CBN will be able to achieve its aim of unpredictable and intermittent interventions because predictability is never an asset in that market. But since the market commenced 4 days ago, other market players seem to have left the supply side to the CBN, which is not the way to go,” the economist contended.

Nevertheless, Fasua submitted: “We haven’t seen any or much inflows from oil companies, exporters and Diaspora remittances. The black market maintains a premium of up to N50 still compared with the interbank, and banks are not cooperating with the CBN. Something needs be done urgently so that the experiment doesn’t fail. We must never return to the era of predictable weekly interventions which resulted in almost N180 premium between the official and parallel (real) market.”

To the Managing Director of Dunn Loren Merrified Asset Management Ltd, Tola Odukoya, the domestic currency should have been devalued a few years back.

His words: “You know I have told you before that the decision is just a face saving one. The CBN should take the bull by the horn by devaluing the naira. They should have done it many years ago”.

Matthew Ogagavworia, a charted accountant and business advisor, said the next two months will be crucial in the market as what happened there will either bring back foreign investors or keep them permanently out of Nigeria’s economy.

“I think we should not be deceiving ourselves by saying that things are okay with us. We need foreign investments and these will not come if investors are not ready to come here. Our prayer is that the new forex market will bring them back”.