Nigeria Stocks, Black Market Naira Soar After FX Reforms

The Nigerian naira firmed on the black market on Friday , while stocks

posted their biggest weekly rally in 14 months as domestic funds

snapped up shares following central bank currency reforms designed to

attract foreign investors , traders said.

The Central Bank has said it will let the market set the exchange rate

freely as of Monday , abandoning a 16 -month policy of pegging the

currency at 197 to the dollar , harming investment and causing the

economy to contract .

The naira traded at 355 on the black market on Friday , up 2 .8

percent on the day following the central bank 's announcement on the

currency reforms .

A Reuters poll found that analysts expect that when the naira floats

freely on Monday it will trade at 275 to 300 per dollar .

" The success of the new exchange rate regime will ultimately depend

on how effective it is in attracting more foreign investment and

getting pockets of dollars hoarded on the domestic front back into the

market place , " said Cobus de Hart , economist at NKC Economists.

In the non -deliverable forward markets , the one -month contract ,

gained 3 .45 percent to equal the record high of 300 naira per dollar

hit the previous day.

Stock traders said domestic investors were buying shares at cheap

valuations , hoping that a more liberal currency market and the recent

stock - market rally will draw foreign investors , who have avoided

Nigeria due to the risk of a currency devaluation .

The stock market, which has the second-biggest weighting after Kuwait

on the MSCI frontier market index, climbed for the third straight day

on Friday , to close 2 .66 percent higher at 29 , 247 points. Stocks

rose 7 . 4 percent this week .

But worries over where the naira will start trading on Monday and how

an estimated $ 4 billion backlog of demand in the currency market will

be cleared , still persist , analysts say .

Bank chiefs and treasurers were meeting Central Bank officials on

Friday to discuss trading on Monday .

The Central Bank on Friday sold long- dated treasury bills at higher

yields than in the secondary market to mop up naira liquidity before

the start next week of open market currency trading , to curb

speculation .

It mopped up 205 . 9 billion naira ($ 1 .03 billion ) worth of

one-year bills at a price yielding 15 .6 percent , the same level as

inflation , which was running above a six -year high as of May.

Secondary market bills were trading at 10 .81 percent on Friday , traders said .

" Foreign investors will need to be convinced that the new FX regime

is sustainable in the medium -term and will likely also require higher

yields before resuming the purchase of local debt , " said Samir Gadio

, head of Africa strategy at Standard Chartered Bank.

Meanwhile , the International Monetary Fund ( IMF ) said on Thursday

it welcomed the decision by Nigeria 's central bank to abandon its

currency peg and adopt a flexible exchange rate policy, saying this

was important to reduce fiscal and external imbalances .

IMF spokesman Gerry Rice told a weekly news briefing the Fund wanted

to see how effectively the naira exchange market functions once the

new float system is put into effect next Monday.

" I think the announcement yesterday to revise the guidelines for the

operation of the Nigerian interbank foreign exchange market is an

important and welcome step ," Rice told reporters. " It will provide

greater flexibility in that market, the foreign exchange market."

Senior IMF officials, including Managing Director Christine Lagarde ,

have urged Nigerian officials to allow the naira to fall to absorb

some of the shock to the economy from a plunge in oil prices and

revenues . OPEC member Nigeria is a major oil producer . IMF officials

have said that Nigeria has not requested IMF financial assistance ,

but has been in consultation with the Fund on dealing with budget

shortfalls .

" As we have said before , a significant macroeconomic adjustment that

Nigeria urgently needs to eliminate existing imbalances and support

the competitiveness of the economy is best achieved through a credible

package of policies involving fiscal discipline , monetary tightening,

a flexible exchange rate regime and structural reform, " Rice said. "

Allowing the exchange rate to better reflect market forces is an

integral part of that ."