Nigeria's Market Not Efficient Enough to Adopt Floating FX Rate - Ebo Ayodeji


Tuesday, January 26, 2021 / 11:40AM / Ottoabasi Abasiekong for WebTV / Header Image Credit: Facebook; Afrinvest West Africa

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Nigeria's money market is not efficient yet to adopt a free floating foreign exchange rate regime,  the market must be efficient enough to guarantee a proper price discovery process that reflects supply and demand situations that prevail at any particular time. Mr. Ebo Ayodeji the Head, Research and Strategy, Greenwich Merchant Bank made this point during a discussion on "Monetary Policy in 2021 and Nigeria's Capital Market".


He said for now the best approach remained the managed floating rate FX regime which sees the Central Bank of Nigeria (CBN), making the required adjustments for operators and stakeholders in the market.


The analyst called for periodic and timely adjustments by the CBN to guarantee a functional market that has the confidence of investors.


Speaking further he cited the Importers and Exporters (I&E) FX window which has witnessed significant interventions from the CBN and brought some level of predictability to the FX market to attract foreign portfolio investments (FPIs).


For the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) that is holding its final meeting today to take monetary policy decisions, he expected that the policy rate would be retained at 11.5% alongside other parameters.


Ayodeji was of the view that in H2, 2021 the CBN may begin to tinker with the monetary policy rate as it observes the level of recovery and stabilization of the economy.


"With no change in the variables of the monetary policy rate and other parameters in the first MPC meeting for 2021, the fixed income market will have more clarity while trading activities will pick up and rates should moderate slightly" he said.


Looking at the implications for the equities market, Ayodeji noted that there will be a likely increase of activities from the domestic investors, while dividend yields will be closely watched in terms of the value that will be derived for investors.


On the pathway to a productive economy, he called for a long-term development plan for the manufacturing sector in Nigeria, which should also attract financial institutions and other investors to increase lending to the sector.


Looking at the role the CBN is playing in stabilizing the economy as it continues to navigate the current recession, he highlighted the fact that in 2020 it financed the deficit of the Federal Government to roughly N2.9trn.


He also acknowledged the interventions carried out by the CBN for key sectors of the economy, which was part of its supportive role to drive the economy faster.


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