Dipo Olowookere
By Dipo Olowookere
Discussions are ongoing with the Central Bank of Nigeria (CBN) for the introduction of between 5-year and 10-year Naira futures contract, Bloomberg is reporting.
In 2017, the apex bank began the sale of foreign-currency futures contracts on the FMDQ Securities Exchange Plc with a maximum duration of 13 months.
This was mainly to lessen pressure on the Naira by spreading Dollar purchases over a period time, enabling investors to hedge against fluctuations in the Naira, while also offering forwards that were introduced in 2011.
Quoting the CEO of FMDQ, Mr Bola Onadele, in an interview in Lagos, it was said that the introduction of the FX futures was being considered so as to ease pressure on the local currency and boost investor confidence as the price of the crude oil, especially the Brent, which Nigeria’s crude is categorized, has been trading below the budget benchmark of $60 per barrel lately.
The domestic currency has been under pressure recently as a result of unclear economic direction of the present administration of President Muhammadu Buhari, which has caused outflows of foreign exchange from the country as well as fears of a possible devaluation of the Naira.
According to Mr Onadele, market dealers and the FMDQ are “engaging the central bank to extend the curve of the FX futures because it will create stability for capital inflows into Nigeria,” adding that, “We wish for 5- to 10-year futures.”
If the longer futures are introduced, it would help cushion against foreign-exchange risks and attract longer-term funding to the nation.
“The best way to guard against exchange-rate volatility is to purchase futures contracts,” Mr Onadele said, stressing that, “Longer-tenor futures will help to drive capital into Nigeria. It also provides opportunities for Nigerians in diaspora to bring their money home.”
Continui9ng, the FMDQ chief said, “The availability of this FX futures product reduces, if not eliminates, the need to hoard FX and front-load on FX requirements.”
He expressed optimism that, “Foreign-portfolio investors tracking value will buy the futures, so will foreign direct investors and long-term borrowers in foreign currency.”
Nigeria operates a system of multiple exchange rates in a bid to control demand for Dollars. The system, criticized by the International Monetary Fund (IMF), has kept the official rate at about N305 per Dollar at the interbank segment, N358/$ at the Investors and Exporters (I&E) segment and N360 to a Dollar at the parallel market.
