New FX window in chaos as traders disagree over rates

By odunewu Segun

In April, the Central Bank of Nigeria had announced that it would allow investors to trade the naira at market determined rates, a move intended to improve the dollar supply and attract foreign investors.

But, barely two weeks old, the new investors’ FX window, seems to already be in a state of confusion as traders and locals disagree over applicable exchange rates in the window.

While foreign investors were demanding rates above 400 naira per dollar locals were quoting rates as low as 350, necessitating the FMDQ OTC Securities Exchange to convene a traders’ meeting to discuss this wide range of quotes on the naira for investors. Unfortunately, though, the meeting did not have any favorable, ‘concrete’ outcome.

The worry for traders continues to be the illiquidity in the currency market despite the fact that the CBN has allowed rates in the window to be market-determined.

The CBN, while selling dollars aggressively on the forward market, has only sold tiny volumes on the spot market, a move analysts believe the apex bank is using to narrow the currency spread with black market rates.

Traders say this has contributed to illiquidity in the market. Similarly, investors are adamant that the over-the-phone trading system encourages a lack of price discovery and transparency in the market.

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While these problems and disagreements could be looked at as initial hiccups common to new initiatives, they could signal a wider problem which the CBN would have to tackle sooner rather than later. On the flip side, the CBN could use these problems as further proof of why it is reluctant to allow for a full float of the Naira.

Meanwhile, capital market operators have said the Nigerian stock market rebound would only be sustained with the stability in the foreign exchange system.

Mr Sewa Wusu, Head Research, SCM Capital Ltd., said that stability around the foreign exchange challenges would be a strong impetus for market performance going forward.

He explained that the performance of the market going would be dependent on the sustainability of earnings of companies and foreign exchange stability.

For Mr. Ambrose Omordion, the Chief Operating Officer, InvestData Ltd, more encouraging economic data and eventual passage of the much-awaited 2017 budget would improve market liquidity.

He attributed the weak market response to the positive 2017 first numbers released in the market low liquidity in the market and the economy due to uncertainties surrounding non-passage of the 2017 budget.