New Forex Policy: Stock Market Records Best Global Performance

Mr Ejump

• Gains N 500bn In Two Days

NEC Backs CBN On Flexible Rate

After recording massive loss in recent times , there seems to be a ray of hope for investors, as the stock market reacted positively with a gain of N 500 billion or 5.38 percent in the last two trading days following the release of framework for flexible forex policy by the Central Bank of Nigeria (CBN).
According to Bloomberg News, stocks climbed 2.6 percent yesterday, the best performance worldwide, after jumping 3.2 per cent the previous day (Wednesday).
The news agency further reported that Nigeria ’s 2023 dollar bonds slipped , sending the yield up 15 basis points to 7.21 percent, following the biggest gain since 2014 the previous day.
Analysts said banks and consumer goods companies led the charge, driven by expectations that a more flexible foreign exchange policy will boost dollar supply and lure back foreign investors.
Stocks climbed 2.14 percent after the close of trading yesterday, as the All -Share Index (NSE – ASI ) closed at 28,489.89 basis points, up from 27,891.96 points the previous day, while market capitalisation added N205 billion to close higher at N9.784 trillion from N9.579 trillion recorded the previous day, becoming the best performance worldwide , after jumping 3.17 per cent or N 295 billion the previous day.
The Central Bank of Nigeria (CBN ) had , on Wednesday , unveiled the new guidelines for the Nigeria Interbank Foreign Exchange (NIFEX) Market , allowing the exchange rate of the naira to be determined by the market forces of demand and supply.
Analysts believe that the new guidelines, which came after weeks of expectations, will reduce pressure on the local currency and attract foreign investors. CBN Governor, Mr. Godwin Emefiele , said the bank had resolved to, henceforth, deal with FX Primary Dealers (FXPDs) under the new arrangement .
He, however, stated that the existing ban on 41 items from accessing forex from the official window would remain in place . Reacting to this development , Managing Director, Crane Securities Limited, Mr. Mike Eze, said the liberalisation of the exchange rate is expected to impact positively on the economy, adding that the policy will attract foreign direct investment into the country.
He said: “The liberalisation is going to make the economy buoyant and since the capital market is the engine room of the economy, it will also help to revive the market, as foreigners will like to mop- up stocks that have good fundamentals. “The cheering news is that the Central Bank has come to realise that we need a flexible exchange rate regime rather than the fixed regime.
“The introduction of a flexible interbank market from a de facto peg of around N 197 would boost investors’ confidence and create more dollar liquidity .”
Also , analysts at Cowry Asset Management Limited said that capital market activities were expected to witness gradual recovery, as foreign exchange risk diminishes with the adoption of a more flexible exchange rate regime.
The decision surpassed many analysts ’ expectations of a managed float or two – tier foreign- exchange system, and may draw back foreign investors who sold Nigerian assets; concerned that devaluation would erode their returns. A free float was “one option we didn’t see coming ,” said Nema Ramkhelawan- Bhana, an analyst at Rand Merchant Bank in Johannesburg.
“It ’s definitely a step in the right direction. It’ s long overdue and it will go a long way toward an economic re-balancing . But it’s just the first step .
“A free – floating and weaker naira won ’ t be just good news . It may also fuel inflation , already at a sixyear high, and force the Central Bank to raise borrowing costs, hurting those who can least afford it: the poor,” he added.
“The economy is going to struggle for the rest of the year partly owing to the delay in implementing a floating exchange rate,” said Adewale Okunrinboye, an analyst at Lagos based Asset & Resource Management Co . “ The nation has suffered from the delay. Prices are going to come under pressure. ” Also, the National Economic Council (NEC) has approved the new foreign exchange policy. Governor Udom Emmanuel of Akwa Ibom said this in Abuja while briefing State House correspondents on the outcome of the NEC meeting presided over by Vice -President Yemi Osinbajo.
“Certainly , it is a welcome development. (There are) two areas that we needed to really take headlong. One is this flexible foreign exchange policy. And to make it a little bit more flexible right now, I think it is a welcome development.
“That is the opinion of almost everybody today who knows the advantages of having a flexible exchange policy. It is going to help the economy ; it is going to help ease of access . “And if you also listen to the details of what he (the CBN Governor ) gave, so that I don ’t actually repeat what he has said, I am sure at the end of the day, head or tail , we should be better off for it. ’’