CBN Floats The Naira – Finally, The Central Bank of Nigeria (CBN) on Wednesday have come out to announce what it termed the “automatic adjustment mechanism of the exchange rate” in a flexible foreign exchange regime aimed at reducing the pressure on the Naira.
According to the CBN Governor Mr. Emefiele said, “The Central Bank of Nigeria has always maintained that it would continue to monitor situations on the ground and ensure that the Bank’s policies reflect these facts and developments rather than the sentiments of any groups or sectors. CBN Floats The Naira
It is in light of this principle that we now believe that the time is right to restore the automatic adjustment mechanism of the exchange rate with the re-introduction of a flexible inter-bank exchange rate market.
“The workings of this market will be consistent with the Bank’s objectives of enhancing efficiency and facilitating a liquid and transparent Foreign Exchange Market.
Below are the highlights of the new regime: *The Exchange Rate would be purely market as driven using the Thomson Reuters Order Matching System as well as the Conversational Dealing Book. *The CBN would participate in the Market through periodic interventions to either buy or sell FX as the need arises.
*Again for us to us to improve the dynamics of the market, the Nation’s economy as it where will have to introduce FX Primary Dealers (FXPD) who therefore would be registered by the CBN to be the sole entity to deal directly with the Bank for large trade sizes on a two-way quotes basis.
*He also said that These will be the Primary Dealers shall operate with other dealers in the Inter-bank market, amongst other obligations that will be stipulated in the Foreign Exchange Primary Dealers (FXPD) Guidelines, which would also be released immediately after this Press Briefing.
Also marketers should also note that There shall be no predetermined spread on FX spot transactions executed through the CBN intervention with Primary Dealers, while all FX Spot purchased by Authorized Dealers are transferable in the inter-bank FX Market.
The Forty One (41) items classified as “Not Valid for Foreign Exchange” as detailed in a previous CBN Circular shall remain inadmissible in the Nigerian FX market.
To enhance liquidity in the market, the CBN may also offer long-tenored FX Forwards of 6 to 12 months or any tenor to Authorized Dealers
The CBN shall introduce non-deliverable over-the-counter (OTC) Naira-settled Futures, with daily rates on the CBN-approved FMDQ Trading and Reporting System. This is an entirely new product in the Nigerian Foreign Exchange Market, which would help moderate volatility in the exchange rate by moving non-urgent FX demand from the Spot to the Futures market;