Ukeje: CBN is Desirous to Boost Market Liquidity

The Special Adviser to the Central Bank of Nigeria Governor on Financial Markets, Mr. Emmanuel Ukeje, spoke to Obinna Chima on recent developments in Nigeria’s foreign exchange market. Excerpts:

What informed the decision by the CBN to direct banks to commence the sale of forex accruing from remittances to licenced Bureau De Change operators because some analysts have described it as a policy summersault by the CBN?

It is not a policy summersault because you remember that even when we decided to stop funding them (BDCs), we said they could get their money from autonomous sources, and that the central bank will no longer allocate money to them. You know these inflows that are coming in into the banks; it is not central bank’s money.

We all know that these are individual funds coming in through Western Union, MoneyGram and the likes. What Nigerians do is that if they have dollar expenses in the US, all they used to do was to look for someone that has need for naira. Some people do that and those dollars don’t come in. So, we had said in the past that we would keep working with these people (BDCs).

If we don’t do anything to a very large extent to help these people (BDCs), it might affect the market. Even when we said we were not going to fund them, we still said they could get their monies from autonomous sources. So, the central bank is not reversing itself because we are not giving them any funding. We keep dialoguing. We cannot say we want to ignore them out completely. Nobody is saying export proceeds should be given to them. It is just normal monies that come in through remittances. So, they BDCs can have that to oil their businesses. So, it is part of efforts to boost dollar liquidity in the market and ensure stability of exchange rate.

Do you think this new policy can help ease the pressure we have seen in the market in the past few days?

To a very large extent, it should help to ease the pressure in the forex market. What happens is that if they are sure of more sources of FX, other than one now, then people would be calm. Now, if this other source which is supposed to be supplementing the interbank market gets supply, in as much as the gap has narrowed, no matter how small it, we think it would reduce the panic in the system.

There have been so many circulars on the forex market from the central bank. What do you think is the solution to achieving exchange rate stability in the country?

You have come to the issue of stability which is part of what we have been saying over time. You know the dollar is a currency we do not produce. So, for you to have enough of it, you must earn it. We all know the structure of our economy that is why we are saying that we must to a very large extent diversify the economy. See what it happening to crude oil prices and also the quantity the country produces. The amount we spend in importing petrol and other petroleum products is very huge. By the time all these refineries that are coming start functioning and take away that huge chunk being imported; you would have taken away almost 30 per cent of foreign exchange demand for import.

So, for us, the best thing is that while we are doing demand management, we should also ensure that we diversify the economy and produce more. This is because the moment you start earning the foreign exchange, then you don’t have issues. No matter what happens internationally to the currency, it doesn’t affect your exchange rate adversely. This is because by then, you would have developed other areas to cushion the effect. Mind you, even the last time we had such slump in crude oil prices; we were able to overcome it because we had plenty of money in terms of Excess Crude Account (ECA) and the external reserves.

Unfortunately, we don’t have that strong buffer now. But you know what is happening now is not peculiar to Nigeria. It is a global issue. You can also see what the Brexit caused and how much the pound sterling has lost against the dollar. But we believe that going forward, if the diversification drive is sustained, we would come out stronger. This again has to do with the issue of demand and supply. When we have a situation when we continue to demand for a particular product and the supply is not enough to match the demand, then it becomes an issue.

So if we are able to reduce our demand for import, we would be able to save currencies to be used to fund industrial production and not consumption items. People may argue that consumption is critical, but you need to produce before you consume. What is it that grows an economy? It is production. So, to a very large extent we all need to continue supporting government’s diversification effort so that we can be able to earn more dollars. There is no short cut to it. If we don’t earn dollars, the CBN cannot produce dollars. Today, we have the budget, but unfortunately, we all know what is happening to our crude oil and all these are limitations which I believe we would overcome with time.

Where is the naira headed in the coming days?

I can tell you that that definitely it is going to start appreciating. If you ask me, I will tell you that the worse is over. It is not going to depreciate lower than what we are seeing presently. It is going to be heading southward in terms of appreciation and not northward.

Are we expecting the CBN to continue intervening in the interbank market?

The CBN will not abdicate on its role as a market participant. We have been intervening in the market by selling money. It is the issue of the volume we want to put in at a particular point in time, depending on where we see rates going. Even though we are an interventionist, we are also a market participant. We make sure that when we are intervening, we do so based on a two-way quote system. We come into the market to sell; we can also buy if we want to buy, depending on where we see liquidity. But for now, the central bank will not shirk its role of being an interventionist in that market. We will continue to play that role because it is one of our mandatory duties to moderate rate depending on what happens in that market.

Finally, with this new forex market structure, has the central bank loosen its hold on capital control?
If we talk about capital control, even before now, there was no lid on capital control. Before we used to say if you bring in your capital, it has to stay for about a year before you can repatriate, but that was removed long ago. So, as a matter of fact, there is no lid we are removing because there was no lid on it before the new forex guidelines. The lid had been removed long before now.