•Naira appreciates further
•Fitch endorses new policy with a caveat
By Emeka Anaeto, Economy Editor
Positive market trend heightened yesterday as a result of the new foreign exchange policy introduced by Central Bank of Nigeria, CBN, mid this week, leading Naira unto 6.7 per cent appreciation and a total of N702.6 billion gains by investors in the stock market.
Yesterday Naira appreciated massively against the US Dollar to N350/USD1.00 from N365 the previous day. The rate had crashed to N375 from on the first day after the announcement of the new foreign exchange policy before reversing a day later.
Naira-Dollar
The stock market maintained its upward trend as The Nigerian Stock Exchange All Share Index (NSE ASI) appreciated by 2.66 per cent to close at 29,247.27 points.
Similarly, the Market Capitalization apprec-iated by 2.66 per cent to close at N10.04 trillion, bringing total gains of N702.6 billion to investors in the first three trading days following the new foreign exchange policy.
Interest rate began a decline yesterday at the inter-bank market with the overnight rate dropping 250 basis points to 1.5 percent on Friday from a week ago, driven by excess liquidity, prompting the CBN, to mop up the Naira at higher rates to support its new currency regime.
In the same trend banking industry liquidity surged astronomically to N1.1 trillion against N401.7 billion recorded previous week.
The excess liquidity prompted the CBN to sell N205.9 billion worth of one-year Nigerian Treasury Bills, NTB, on Friday at 13.5 percent, compared with the secondary market rate of 10.81 percent, treasury dealers said. The apex bank had offered N78 billion in bills on Thursday.
The apex bank had announced it would start a new foreign exchange trading regime on Monday, which would border on market forces driven, thereby abandoning its controlled market policy, a development which market observers said would set the stage for the depreciation of the local currency.
Fitch endorses new policy
Meanwhile, Fitch Ratings, world’s leading economic and financial rating agency, has endorsed the new policy.
In a release in London yesterday the agency stated, ”Nigeria’s planned shift to a more flexible foreign-exchange regime could aid the country’s adjustment to lower oil prices and support growth, although implementation may present challenges.”
The International Monetary Fund, IMF, had earlier given its endorsement of the new forex regime with the spokesman, Gerry Rice, stating that the Fund wanted to see how effectively the Naira exchange market functions once the new float system is put into effect on Monday.
The two institutions were among several international financial organizations that disagreed with the CBN’s previous market controls at a time foreign investors were withdrawing from the economy as a result.
However, Fitch warned that establishing the new framework’s credibility will be key to its effectiveness in attracting foreign portfolio investments as well as foreign direct investments to make up for lower oil export receipts.
CBN’s previous policy of restricting access to the official foreign exchange market and supporting the Naira, rather than risk the inflationary impact of devaluation, has been negative for Nigeria’s sovereign credit profile.
According to Fitch, defending the Naira has lowered reserves and increased external vulnerabilities, while a shortage of hard currency has weighed down the non-oil economy.
Fitch stated, ”the change of policy is consistent with our view that the CBN would struggle to defend the Naira indefinitely.
”But a backlog of unmet dollar demand (estimates range from USD4 billion to USD9 billion) has built up and any inability to clear a significant portion of that backlog early in the transition would hinder the effectiveness of the new framework”.
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