Stocks in the Nigerian Exchange soared to near a 5-month high while bond prices rose on Wednesday, driven by hopes that a flexible foreign exchange policy adopted by the Central Bank of Nigeria, CBN, will help boost dollar supply and lure foreign investors.
The CBN on Tuesday said it would adopt a flexible exchange rate policy, a shift from a peg for the naira seen as overvalued, which had hampered investment.
The main stock index closed at 28,260 points, up 3.78 pct to levels last seen on Jan. 5, ending a selloff by foreign investors who had quit due to currency curbs and worries they would get caught in the middle of naira devaluation.
“The cheering news is that the CBN has come to realise that we need a flexible exchange rate regime rather than the fixed regime,” said Ayodeji Ebo, head of research at Afrinvest.
The introduction of a flexible interbank market from a de facto peg of around 197 would boost investors’ confidence and create more dollar liquidity, Ebo said.
But the currency parallel market was frozen, with the naira remaining unchanged at 346 to the dollar, as traders were confused over how the new rules would be implemented. The CBN has only said it will give guidance within days.
Traders said the apex bank settled dollar bids submitted last week on Wednesday at its pegged rate of 197, implying that the new policy was yet to take effect.
Bond prices rose as traders bought debt to cover positions taken before the CBN’s decision as they had expected the main rate to stay at 12 percent to boost Africa’s biggest economy to tackle slowing growth.
Few expect foreign investors to return in the short term after exiting the debt market last year due to JP Morgan’s decision to remove Nigeria from its government bond index.
Parliament summoned the CBN governor and the finance minister to explain its shift, which also puzzled some analysts.
“To the sceptics among us, this will simply sound like a re-hash of the same old material we’ve been hearing about since December 2015,” said Alan Cameron at Exotic Partners.
President Muhammadu Buhari said last December there would be a more flexible system but took no action. Since then he has vehemently rejected any naira devaluation.
Giving an indication of where traders see the naira going once the rules become clearer the one-month non-deliverable forward traded at 270.
Analysts expected the interbank market to take a cue from the N285 to the dollar now used by the government to calculate fuel imports.
It had lifted prices to N145 ($0.73) a litre from N86.5 before to eliminate a costly subsidy scheme.

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