Nigeria: New forex policy will boost market liquidity, say analysts

Feb 24, 2015

The move will also lead to higher revenue for states and the federal government.

The Central Bank of Nigeria (CBN) has announced the closure of the bi-weekly sale of forex through the Retail Dutch Auction System (RDAS) and Wholesale Dutch Auction System (WDAS) with immediate effect.

The CBN will now sell dollars at a fixed rate of N198 to the dollar at the interbank market for the time being.

The move will significantly boost market liquidity and also lead to a decline in the currency pressure observed in the forex market in recent times, analysts at the Financial Derivatives Company Limited (FDC) quoted by This Day have said.

They added that it also lowers the risk of JP Morgan removing Nigeria from its key emerging currency bond index.

In addition, the FDC believes that it will lead to higher revenue for states and the federal government, as well as boosting non-oil exports.

"Expensive dollar means lower demand. In closing the DAS, the CBN has done away with an exchange rate policy that had become unsustainable, because of depleting forex reserves," it said.

"As a result of this policy decision, we believe speculative forex demand that was driven by an expectation of a devaluation will fall, and in so doing go a long way towards conserving the remaining forex reserves", the FDC added.ADNFCR-2976-ID-801776783-ADNFCR