Flexible forex regime: Expert puts naira at 320/$1

Financial experts in the country have predicted this week as likely for the announcement of details of the new flexible exchange rate regime promised by the Central Bank of Nigeria last month.

At the last monetary policy committee (MPC) meeting held 20 days ago, members agreed to hold all policy rates constant and introduce greater flexibility in managing forex rate. As a result of this, a lot of investors were cautiously optimistic and indeed excited.

The Chief Executive Officer, Financial Derivatives Company Limited, Bismarck, creating possible outcomes on the planned flexible exchange rate, predicted that the critical window rate could be N220/$; Interbank – N280/$ and parallel market- N320/$.

Analysts at Afrinvest West Africa Limited, in a report said it expects that the CBN would adopt “a crawling band system which will consist of an adjustable official rate at which the Bank intervenes and a corridor around the rate to moderate fluctuations in the interbank market.”

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“This would still be marked improvement over the current fixed peg system but concerns would still remain on how the CBN would be adjusting its intervention rate (i.e. would it toe the parallel rate in lockstep manner or be fixed?) and how wide the width of the (a) symmetric corridor would be,” Afrinvest added.

The CBN had been heavily hamstrung by dwindling oil revenue receipts, brought about by the violent activities of militants in the Niger Delta, which have reduced the country’s monthly oil sales income from the all-time high of $3.2bn just 15 months ago to about $500,000 in April.

Experiencing great difficulties in funding the nation’s imports as a result of scarce foreign exchange, a situation that had put a heavy pressure on the naira, sending it on a free-fall, the CBN had to think up a workable solution that would open up the forex market while maintaining a robust forex reserve.

The dilemma for the apex bank, however, is how to hold on to the current reserves level of about $28bn and maintain price stability in the foreign exchange market in the face of dwindling oil receipts.