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Economy: New foreign exchange policy triggers market rebound

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In an obvious reaction to the announcement of a new monetary policy by the Central Bank of Nigeria, the Nigerian Stock Exchange All-Share Index gained 3.17 percent on Wednesday.

The CBN governor, Godwin Emefiele, on Wednesday in Abuja announced the adoption of flexible foreign exchange guidelines planned to start on Monday.

The market immediately reacted positively to the announcement with the NSE capitalisation growing by N295bn as the value rose to N9.579tn from Tuesday’s close of N9.284tn, while the NSE ASI hit 27,891.96 basis points from 27,034.05 basis points.

Aggregate of 588.427 million shares worth N3.477bn were traded in 5,088 deals at the close of trading on the floor of the Exchange on Wednesday.

The announcement of the policy shift had no immediate effect on the value of the naira in the parallel market as it closed at 367 against the dollar the same rate it exchanged for on Tuesday.

But that is expected to change when the new policy comes into effect on Monday with the dollar expected to exchange for more naira but analyst say over time the forces of demand of supply will stabilise the value of the naira.

The National President, Association of Bureau De Change Operators, Alhaji Aminu Gwadabe, told the Punch newspaper that the policy had yet to have effects on the exchange rate at the parallel market.

Analysts, who spoke to one of our correspondents, commended the CBN for the new policy, saying it would bring down prices and eliminate market distortions.

“It is a good policy; it will eliminate market distortions and bring down prices,” the Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, said. He added, “However, it is not a silver bullet; there is still a lot of work to be done.”

Similarly, Chief Executive Officer, Cowry Assets Management Limited, Mr. Johnson Chuwku, who backed the policy framework, said it would enhance price stability and help cut inflation.

“It was most expected though coming late; it is better than nothing. It will lead to inflow of Foreign Direct Investment and remittances. This shows we are preparing the economy for diversification,” he stated.

A Professor of Economics at the Olabisi Onabanjo University, Sherifdeen Tella, said, “I don’t think there is anything wrong with the policy. However, there is still a need for the CBN to intervene in the market at some point. We cannot leave everything to the market.

“Therefore, we still need more restrictions on importation in order to preserve the reserves. We should not just buy the idea of free market that will allow just anything to come into the country. Even economies like Japan and the rest still do this.”

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