Stocks Near 5-Month High After CBN FOrex Shift

Stocks soared to near a 5-month high on Wednesday with banks leading the charge, driven by hopes that a more flexible foreign exchange policy will boost dollar supply and lure back foreign investors.
On Tuesday, the central bank said it would adopt a flexible exchange rate policy, a shift from a peg for the naira seen as overvalued, which had hampered growth and investment.
The main stock index was up 3.36 per cent at 28,143 points at 1057 GMT, to levels last seen on Jan. 5, ending a selloff by foreign investors who had quit due to currency curbs and worries they would get caught in the middle of a naira devaluation.
Nigerian and foreign companies active in the oil-producing country have been laying off staff as they struggle to get hard currency to fund imports for spare parts and their products.
“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,” said Ayodeji Ebo, head of research at Afrinvest.
The introduction of a flexible interbank market from a de facto peg of around N197 would boost investors’ confidence and create more dollar liquidity, Ebo said.
But the currency parallel market was frozen, with the naira remaining unchanged at N346 to the dollar, as traders were confused over how the new rules would be implemented. The central bank has only said it will give guidance within days.
“The relevance of the coming reform will hinge on just how much flexibility is allowed,” said Alan Cameron at Exotic Partners. “To the sceptics among us, this will simply sound like a re-hash of the same old material we’ve been hearing about since December 2015.”
President Muhammadu Buhari said last December there would be a more flexible system but took no action. Since then he has vehemently rejected any naira devaluation.
Giving an indication of where traders see the naira going once the rules become clearer the one-month non-deliverable forward fell 3.1 per cent to N226.30.
Prior to Tuesday’s news, traders had put together bids to submit to the central bank’s weekly dollar sale on Thursday but were now awaiting the guidance on the rate, dealers said.
Analysts expected the interbank market to take a cue from the N285 to the dollar now used by the government to calculate fuel imports. It had lifted prices to N145 ($0.73) a litre from N86.5 before to eliminate a costly subsidy scheme.
Source: Reuters

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