CBN forex float policy: one month in

It's been a month since the CBN ended its peg on the Naira, effectively allowing the Naira to kind-of float freely on the interbank market.

However, the CBN only allowed this free float policy hold for a day. The apex bank claims in its policy that it was going to allow market forces determine the true value of the Naira but that has not been the case.

Since the Naira dropped 30% on June 20, the first of so-called float policy, the CBN has kept a grip on the exchange rate. Foreign exchange inflows have barely picked up since then and the CBN has refused to drop measures it put in place to curb dollar demand.

On the parallel market, the Naira has been unable to drop below the N300 point since the float began and last week the currency further lost value and plummeted into above N300/dollar.

Forward contracts, which are seen as a gauge of foreign investors' views on the currency, are at record highs, suggesting that stakeholders expect the Naira to drop further. The important question is when.

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All things considered, the situation doesn't look like it is going to ease up anytime soon. Little trading is taking place on the interbank market with an average of $40 million a day, according to South Africa-based Standard Bank Group. In 2013, daily trading volumes were as high as $1 billion.

Trading on the interbank market has also been stunted because dollar purchases have to be backed by customer orders, which means primary dealers and other banks can't trade for a profit on their own behalf.

“We’re still plagued by the same problem we had prior to June,” said Nema Ramkhelawan-Bhana, an analyst at FirstRand’s Rand Merchant Bank in Johannesburg, according to Bloomberg. “There’s growing import and investment demand that isn’t necessarily being settled. Market participants have been quite skeptical of this new framework. They’re not yet allowed to determine the rate themselves.”

Oil prices, which also make up a big part of Nigeria's earning power, have been dropping steadily and that in turn has affected the government's ability to properly plan its budget. The future doesn't look too bright for the Naira.