SAT, FEB 15 2020-theG&BJournal- The Central Bank of Nigeria (CBN) is openly proud of its policies. They have every right to be, it hasn’t failed them. If you ask some economy watchers, they will tell you it’s pure magic that all policies enunciated since Godwin Emefiele became the CBN governor has worked like a miracle.
Take the naira management strategy for instance; the currency would have just gone berserk with the crazy drop in crude oil prices. That the currency stayed stable despite the price crash is the biggest miracle yet. Even now and despite all pundits take on the naira, there is no plan, not even in the near future, to adjust or devalue the currency because the naira policy is working perfectly.
And now this! The FDMQ Securities Exchange Limited together with the CBN announced the introduction of long-term monthly naira-settled OTC futures contracts, which provide a FX rate hedge of up to 5 years. This is against the current market structure where the longest tenor offered by the CBN is over 13-months.
The new monthly futures contracts apply to new foreign inflows; foreign transactions executed prior to this require the CBN’s approval.
But here is the take-theoretically, the new longer-term contracts should ordinarily increase foreign inflows into the economy and shore up FX reserves. However, the key concern is the availability of long term investible and highly liquid instruments with high yielding returns. It’s not there yet.
And if you ask analysts at Cordros Securities, they will tell you that ‘’increased inflows into the bond market would have been likely, however, foreign traction in the bond market has dipped significantly following Nigeria’s removal from JPMorgan Government Bond Index-Emerging Markets Index (GBI-EM) in 2015.’’
But it will be interesting to see how this new policy impacts the foreign reserves which dropped by 12.4% to $26.68 billion from a year earlier as of February 10.
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