Nairametrics| In a bid to placate and lure foreign investors, the CBN introduced a window for investors and exporters looking to buy or sell dollars at a more market determined rate. The window was pitched as a market that will be insulated from the fixed price that was symbolic of other windows.
The CBN, believes liquidity will mostly be provided by dealers and will only intervene should there be strong signs of a liquidity squeeze. It appears, this scenario is playing out as investors share their experience.
Experience in the FX Window
Initial reaction to this window was understandably cautious but mostly welcomed. Investors were concerned about the manual nature of the price determination as the FMDQ will have to rely more on telephone calls to confirm prices, rather than use the Reuters engine, which the CBN claimed was slow to be adopted by market participants.
We have now received the first set of feed-backs from foreign investors, and as Bloomberg reports, they are a mix of good and bad.
Unlike last year when they were dissatisfied with the disparity between the official rate and the black market rate, the concern seems to have moved towards two main concerns.
- Shortage of dollars – they claim the CBN has not provided liquidity for the window.
- Manipulation – They are concerned that the CBN may manipulate the rates in the window
Despite these concerns, the report suggest investors have started exchanging dollars for naira, albeit in smaller quantities. Some have purchased treasury bills at 22%, while others have invested in bonds. Some have secured positions for investment in equities.
While investors welcomed the move, there’s still a shortage of dollars amid persistent concerns that the monetary authority, which backtracked on a pledge to float the currency last year, will manipulate the rate within the window.
For these traders, caution is still the watchword, however the lure of double digit yields and low asset prices, suggest liquidity is their biggest concern.
See the Bloomberg article here. (Ignore the heading)