The Central Bank Governor has just announced a full float of the Naira
in a press conference in Abuja. The CBN Governor informed a stunned
audience that the exchange rate will be market determined and that the
CBN will also participate in the market occasionally.
The CBN also
maintained that the 41 items banned last year for access to forex
for imports remained banned. The CBN has also appointed primary dealers for the first time which is expected to help boost FX liquidity in the market.
In
a remarkable turn on events for a CBN Governor and Government that have
for months held tightly to an artificial exchange rate, the CBN
Governor also revealed that we will be operating a single market
suggesting that we will no longer have two windows.
The CBN
also introduced a two way quote which basically means that the market
will act like the stock market where buyers and sellers will state price
and quantity they are willing to sell.
The CBN Governor also
confirmed that all the “pent up” demand awaiting to be filled (for
example airlines looking to repatriate their dollars) will be met at the
interbank market but advised caution for buyers looking to rush demand.
In what was quite remarkable he clearly stated that the CBN has enough
reserves to meet demand and is willing to put its reserves on the line.
The
market will also include financial products such as futures where
businesses who need dollars in the near distant future can now hedge buy
buying at a price today but get the dollars delivered when they
actually need it.
As per the new price of the Naira, the CBN
Governor mentioned that the price will be known when the market opens
officially on Monday
The implication of this could be
wide-ranging. However, we can only but conclude that the end of the
black market is near as anyone and everyone can now buy dollars at any
bank or with authorized dealers at a price that is market determined.
Key highlights of the press briefing.
1.
Market moving to single market through interbank via a Reuters / FMDQ
order matching system with 10 primary dealers (2 way quote mechanism)
and other secondary detailers.
2. Primary dealers will operate the interbank market. CBN may intervene from time to time
3. Proceeds of FDI shall be purchased by authorised dealers at the daily interbank rates
4. Non-oil exporters are allowed unfettered access to export proceeds via the interbank rates
5. 41 items formerly constrained by CBN will still not be eligible for trade on interbank
6.
To enhance liquidity, CBN may offer long dated 6 – 12 months forwards
to authorised dealers. Forwards must be traded backed with no authorised
spreads
7. New product : Now authorized NGN futures on the FMDQ
OTC – which will allow non-standardised amounts, no fixed dates or
tenors. Will allow businesses to hedge. Futures will be NGN settled.
8. CBN says they have enough liquidity to play in the market (it surpasses pent up demand)