Five Fantastic Results Nigerians Should Expect from CBN’s Latest Decision

The Central Bank of Nigeria, CBN, on Wednesday, June 15, announced the much anticipated flexible foreign exchange rate policy, aimed at boosting the supply of foreign currency in the country.
Recall, that the CBN’s Monetary Policy Committee, MPC, had in their last meeting on May 24‎, agreed to adopt a greater flexibility in the management of foreign exchange.
However, the delay in the announcement had led to market volatility and further depreciation of the naira.
According to the CBN Governor, Godwin Emefiele, the policy will take off effectively from Monday, June 20, 2016.
He said: ‎”We’re talking about an open, transparent two-way system.
“It’s intended, we don’t have speculators and rent-seekers. I don’t expect that any other exchange rate
will be recognised.
“The Exchange Rate would be purely market-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.
“To improve the dynamics of the market, we will introduce FX Primary Dealers (FXPD), who would be registered by the CBN to deal directly with the Bank for large trade sizes on a two-way quotes basis.
“These Primary Dealers shall operate with other dealers in the Inter-bank market, among other obligations that will be stipulated in the Foreign Exchange Primary Dealers, FXPD, Guidelines, which would also be released.
“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”, Emefiele said.
Post-Nigeria after thorough review of the policy, discovered five drastic changes the announcement may trigger in the Nigerian market in the coming weeks.
One of such is ‎massive depreciation of the naira: the naira in coming weeks will depreciate even much further against the dollar.
Buttressing the point, the Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane, said, that the decision may likely lead to the depreciation of the naira initially, but ‎it will find its equilibrium price at the open market.
Another drastic change to expect is hike in inflation: the prices of goods and services will further increase, leaving more Nigerians vulnerable.
Presently, inflation rate according to the National Bureau of Statistics, NBS, is at a zenith point of 15.6 percent.
Thirdly, investors will be more willing to invest their money in Nigeria:‎ Many foreign investors will be more confident to put in their finance for greater profit, as they will exploit the depreciating nature of the naira; which will avail them more funds and cheap labour.
Fourthly, the policy might lead to the official devaluation of the local currency:‎ It could be recalled, that President Muhammadu Buhari, had consistently opposed devaluation, as doing so to him, is having the naira killed.
Many financial analysts have expressed fears on the sustainability of the policy, ‎as they argued that it is a litmus test that will degenerate to the official devaluation of the naira.
Lastly, Nigeria’s external reserve will begin to rebound: the reserve for the past few months has been on the decline, as at January 2014, the reserve stood at $42.8 billion, presently the reserve is pegged at $26.7 billion.