CBN Projects 19.4 percent appreciation of the naira in 12 months

Following the Kick-off of the Naira-settled OTC FX Futures market on Monday, the CBN released the OTC FX Futures rates for different tenors from one month through to 12 months, with a future dollar/ naira (USD/NGN) rate of N225/$ in a year’s time,  as shown on the futures chain of the recently launched Naira-Settled OTC FX Futures market.

The OTC FX futures market is a non-deliverable forwards contract, which will also improve FX liquidity while also reducing volatility occasioned by panic-buying and front-loading. to be settled on bespoke maturity dates, providing liquidity in the product that will enable corporate treasurers effectively and efficiently manage their FX risks.

The CBN OTC FX Futures rates released shortly after the launch on Monday also showed 12-month (June 2017) tenor rate at N225/$; 9-month (March 2017) tenor rate at (N222/$); 6-month (December 2016) tenor rate at (N250/$); 3-month (September 2016) tenor rate at (N275/$); and 1-month (July 2016) tenor rate at (N279/$).

It is expected that ‎the OTC FX Futures market will serve to minimise the disequilibrium in the Spot FX market and cause the rate to moderate; attract significant capital flows to the Nigerian fixed income and equity markets; and achieve exchange rate stability, implying that there  is no longer the need to front-load FX requirements, which puts immense pressure on, and distorts the Spot FX rate.

Bola Onadele. Koko, managing director/CEO of FMDQ, in a statement said, “The Naira-settled OTC FX Futures product is a major milestone development in the evolution of the Nigerian financial markets.

The Futures market is an opportunity to transform risk into certainty – a major paradigm shift in the financial markets landscape. This innovation provides opportunities for government, businesses, pension fund administrators, investors, individuals and others to hedge (not speculate) to cope with exchange rate risk.”

He said, “It also affords the CBN a greater opportunity to manage exchange rate volatility, thus achieving greater market confidence, liquidity, improvement in business planning, job security, employment, better allocation of resources, global competitiveness of the Nigerian financial markets, and all in all, a thriving economy.