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. ’’