EUR 119.88 For Business Accounts Only

Breakfast Report - 20th June 2016

• The Central Bank of Nigeria (CBN) released a revised guideline on the operations of the Nigerian Inter-Bank FX market towards the liberalization of the market. The new FX market will be a single market structure operated through the autonomous/inter-bank market and is expected to trade largely based on the forces of demand and supply with intermittent interventions by the CBN. In a bid to reduce the pressure on the spot market, the new FX framework will allow the CBN to offer long-tenor FX Forwards to Authorized dealers who may in turn sell trade-backed FX Forwards to end-users with full documentation. However, the 41-items earlier excluded from the CBN window remain ineligible for the interbank FX market and importers of these items are expected to continue to source FX from autonomous sources (to protect local investments in these items).

• Given significant pent-up demand amidst depleting foreign reserve ($26 billion), we foresee sizeable weakness for the Naira. We think it may be expedient for the CBN to address the backlog before the new structure can successfully take off. This should bring a much needed relief for foreign firms that had long sought to repatriate funds, particularly airline operators who are said to have up to $700 million of funds trapped in Nigeria. With the kickoff of the new framework slated for today, trading began on the inter-bank foreign exchange market with Naira opening at about NGN254/USD.

• Bulls remained firmly in control on the Nigerian stock exchange as sustained buying momentum across all major sectors steered the NSE ASI to its strongest weekly return in over a year, driven by the announcement of the new CBN Foreign Exchange regime. Overall, the market posted 740bps gain w/w, putting year to date return at 2.11%.

• All eyes will be on the commencement of FX trading starting Monday, 20 June. We think the success of FX operations will be a big determinant of whether or not last week’s rally is sustained.