Published On: Wed, May 25th, 2016

Cynicism around CBN plans to ensure access to forex

dollars bunchLAGOS, (CAJ News) – AN international finance markets think-tank is  pessimistic of moves the Central Bank of Nigeria (CBN) has implemented to  enhance accessibility to foreign currency.

The position by Rand Merchant Bank (RMB), in its latest global markets  update on Wednesday, comes on the back of the CBN announcing a flexible  exchange rate regime, nullifying the official exchange rate regime of  N197/Dollar.

“Within a more flexible construct, we expect the naira to oscillate in a  wide range of USD/N250 to USD/N320 as inflows are simply inadequate to  quell the rush in demand,” RMB stated.

The financial think tank said this was broadly in line with the recent  trend in the parallel market rate, although the latter has traded close to  350 against the US currency this month.

“The change in stance does little to resolve the overriding problem of US  dollar scarcity, which is ascribed to weak export earnings and investment  flows.”

The CBN was called to action yesterday after the recent deregulation of  the downstream petroleum sector aggravated the US dollar shortage,  widening the differential between the official and parallel exchange  rates.

After a prolonged period of inaction, its Monetary Policy Committee (MPC)  moved to introduce a more dynamic currency framework to legitimise US  Dollar funding outside of the official market and restore the automatic  adjustment properties of the exchange rate.

RMB noted the MPC unanimously agreed to greater exchange rate flexibility  but provided little detail of the proposed market structure.

“The lack of clarity suggests that they are still mulling over a viable framework,” RMB projected.

“We suspect that the CBN will introduce a two-tiered market.”

Analysts said this would allow the bank to allocate US Dollars at a fixed rate to sectors deemed to be of strategic importance to the economy.

The Naira has lost ground against major currencies in a development linked  to the upheavals in the oil markets.

Nigeria is the biggest producer of crude oil in Africa.

CAJ News

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