Nigerian stocks reacted positively to news that the CBN was adopting a flexible exchange rate regime that many thought could mean a shift to a floating exchange rate system.
Nigerian stocks closed trading on Wednesday with a 3.78% gain, a 5-month high while bond prices rose on Wednesday. According to Reuters, the gains were driven by hopes that a flexible foreign exchange policy adopted by the central bank will help boost dollar supply and lure foreign investors.
The main stock index closed at 28,260 points, up 3.78 pct to levels last seen on Jan. 5, ending a selloff by foreign investors who had quit due to currency curbs and worries they would get caught in the middle of a naira devaluation.
Why stocks gained?
According to a Reuters interview traders attribute this rise to an optimism of a return of foreign investors into the market following the Central Bank’s decision.
“The cheering news is that the central bank has come to realise that we need a flexible exchange rate regime rather than the fixed regime,” said Ayodeji Ebo, head of research at Afrinvest.
Will this gain be sustained on Thursday and on till the end of the week? All will depend on what the CBN Governor has to say after being summoned by the Senate after making the announcement.