Forex: 'Review'll close spread between inter-bank, official markets

Following a proposed move by the Central Bank of Nigeria to allow flexible exchange rate for the naira, a report by the Research team of Standard Chartered Bank Group has stated that the review will close the gap between the inter-bank and official markets.The report made available to our correspondent on Tuesday added that the move by the CBN would also preserve the foreign exchange reserves.The Regional Head of Research, Africa, Standard Chartered Bank, Ms. Razia Khan, said, Rather than signal a meaningful devaluation of the naira, the newly announced official mid-point of the naira trading band will merely close the spread that had emerged between the official and inter-bank markets, while preserving Nigerias forex reserves.Confidence in the CBNs ability to commit to the new mid-point will be key to forex market outcomes in the future. In our view, allowing the official forex rate to react to market conditions is a positive development, suggesting that the exchange rate, rather than external reserves, will adjust to heightened demand for forex. However, having announced devaluation once, curbing expectations of further currency weakness, especially if oil prices should come under pressure, may prove more difficult.She pointed out that clarification on official adoption of the new mid-point was expected in the next few days, adding that, if adopted, it would see the acceptable trading range of the naira shift between N150.35 and N159.65 at the official bi-weekly Wholesale Dutch Auction System, from a perceived N145.50 and N154.50 now.Khan said, Indeed, in recent weeks strong demand for forex in Nigeria had resulted in trading outside its preferred band at WDAS auctions, prompting significant tightening by the monetary authorities, and a revision to the rules on what category of forex demand will be admissible at official WDAS auctions.Foreign companies bringing capital into Nigeria and selling forex on the autonomous inter-bank market will, in future, have to use the inter-bank market for the purposes of dividend remittances, likewise for portfolio investors bringing new inflows into the country.
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