Staff Writer
Nigeria’s exchange-traded futures market has come to a complete halt more than a month after the central bank removed the naira’s peg to the dollar due to the country’s volatile local currency.
Since June 15, when the Central Bank of Nigeria announced that it would permit currency trading freely in the so-called investors and exporters window and that the daily fixing on the FMDQ Exchange would be regarded as the official exchange rate, the naira has fluctuated between 742 and 804 to the dollar.
The central bank also removed trading restrictions on oversold foreign exchange positions and let short positions to be hedged using over-the-counter futures in an effort to increase liquidity.
Although there hasn’t been “any noticeable traction” in the futures market as long as there isn’t much demand,
Spot prices that be 750 today, 800 tomorrow, and 850 the next day indicate that the market has not established the price, which has an impact on futures contracts.
The central bank anticipated that loosening exchange restrictions would encourage capital inflows, which would aid in reducing the backlog of dollar demand that had accumulated over time.
The naira was immediately devalued by roughly 40% as a result, but inflows haven’t increased considerably since investors are waiting to see if the government will stick with the approach.
On the Lagos stock exchange, foreign investors sold more equities than they bought in June, more than doubling their outflows from May as they took advantage of the depreciation to sell long-held positions.
Foreign financiers have embraced On July 20, Rand Merchant Bank stated in a note.
According to Tajudeen Ibrahim, head of research at Chapel Hill Denham in Lagos, traders are unwilling to accept the risk of selling or purchasing naira futures because they are unsure of where the naira will ultimately settle.
Ibrahim stated that there is now “little to no clarity” on price discovery. “Until pricing is made clear, the appetite for futures will be dampened position of “wait and see how the market plays out,” said Kayode Omosebi, a banking analyst at Lagos-based Asset & Resource Mgmt Co Ltd. “When you start seeing inflows, particularly portfolio inflows, the futures market will start to increase.”
On Monday, three-month non-deliverable naira forwards were quoted at 800 to the dollar, up from the 778 on Friday.
