New exchange rate policy: Interbank rate may open at N370

…implication for Nigerian banks

By ODUNEWU SEGUN

WITH the decision of the Central Bank of Nigeria to abandon the currency peg and chose officially float the naira, speculations are already shifting towards what the dollar might sell for when the new interbank market opens today.

National Daily gathered that the interbank market, which has been trading around a pegged rate for 16 months, is likely to start trading today at rate between the fixed rate of N197 and the black market rate of N370 to the dollar.

Analysts opined that the market may be volatile beginning from today with the price expected to rise and fall to the dictates of demand and supply. “We believe the price of the Naira could settle at about N350 at the close of trading on Monday and will remain between the N330 to N350 band for some days before it starts to drop again.

According to financial analysts at Renaissance Capital on banks operating in the country,the new policy will result in revaluation gains as banks use the interbank rate for balance sheet conversions.

Also, FX trading gains are expected to spike though some clarifications have to be made on how the surplus will be generated by lenders since the market is unclear on the modus operandi of the interbank FX market.

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“As mentioned previously, GTBank’s expectation of a short term CAR boost if the Naira weakens cannot be seen as broad expectation for other banks, as Zenith for example thinks CAR could decline by about 2ppts if the exchange rate moves to NGN300/$1.,” said analysts at Rencap.

Nigeria, Africa largest economy, hard hit by a significant drop in oil price by 60 percent, had its stock and bond indexes downgraded by international rating agencies as investors divested on the back of a rigid foreign exchange policy.

One of the biggest global rating agencies, Standards & Poor’s (S&P) revised Nigeria’s sovereign credit outlook to negative, from the stable it was previously. Nigeria currently has a B+ rating by the agency.

Moody’s Investors Service in April downgraded Nigeria’s long-term issuer ratings to B1 from Ba3 and has assigned a stable outlook, concluding the review for downgrade initiated on March 4th 2016.

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The Central Bank Governor said there will be primary and secondary dealers and that the number of dealers will not be more than 8 to 10. He added that the apex bank is working hard to see that there is more supply of foreign exchange in the market.

In its recently released policy details also revealed that the BDC’s will not be able to buy dollars from the interbank market. What this also means is that if you own cash dollars then you have a choice of either depositing it in a bank or selling to Bureaux De Change (BDCs).

The CBN also said applicable exchange rate for the purpose of import duty payments shall be the daily inter-bank FX closing rate as published on the CBN website. This means import duties will now be paid based on the closing exchange rate for the day at the interbank market. These rates can be obtained at the website of the FMDQ.