17th June, 2016
An economist, Mr Uche Uwaleke, has said that the new foreign exchange policy will reduce uncertainty in the forex market and boost the confidence of foreign investors, especially in the Nigerian capital market.
Uwaleke, an Associate Professor and Head, Banking and Finance Department, Nasarawa State University, expressed the view in Abuja on Friday.
“One immediate impact would be the reduction in uncertainty in the forex market and its potential in boosting the confidence of foreign investors, especially in the Nigerian capital market.
“To buttress this point, the stock market on Wednesday gained 3.2 per cent in obvious reaction to the announcement of the new policy.
“The implication of the new forex regime will allow the exchange rate to be market determined and as well be wide-ranging,” Uwaleke said.
He said the development would lead to a bullish equity and bonds market in the days ahead following the return of foreign investors, who had exited on account of currency restrictions.
The economist said the policy would likely bring about a significant increase in capital importation and diaspora remittances to shore up the country’s foreign reserves.
He also said it was capable of narrowing the huge gap between the interbank and parallel market rates thereby reducing arbitrage opportunities and artificial demand from the market.
“The introduction of derivative product, such as currency futures, in the new policy will help investors hedge against foreign exchange volatility and by so doing minimise risk in the foreign exchange market.
“On the flip side, the new policy is likely to add to inflationary pressure given the import-dependent nature and the shallow export base of the Nigerian economy,’’ Uwaleke said.
CBN on Wednesday unveiled new guidelines in the management of forex which will be determined by the market and primary dealers.
The new guideline is part of the CBN’s efforts to foster depth, stability and liquidity in the foreign exchange market.