Emefiele Pledges to Sustain FX Interventions as Reserves Hit $31bn

• Says recession will be over this year
• CBN sells $25m through new FX window for investors, exporters

Damilola Oyedele in Abuja and Obinna Chima in Lagos

Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, has revealed that the country’s foreign reserves have exceeded $31 billion, a development which he said gives the central bank the firepower to sustain its forays into the foreign exchange market.

He also expressed optimism that Nigeria would exit the recession by the end of the second quarter of 2017, or latest by the third quarter of the year.

Emefiele made the remarks on Tuesday when he briefed newsmen after a closed-door meeting with the President of the Senate, Dr. Bukola Saraki, and some senators to brief the Senate on its FX policies and interventions in the market.
He added that the interventions of the central bank in the FX market resulted in the appreciation of the naira in the parallel market from N525 to N370 to the dollar, with the rate currently hovering at between N370 to N380.

Emefiele said the gains made by the local currency and corresponding drop in inflation were indications that the country was on its way out of the recession.
“I think it’s an opportunity for me to say that we are going to continue this intervention because the reserves look very good. As I speak to you, our reserve stands at above $31 billion and that provides us enough firepower or ammunition to be able to defend the currency, and we will do so with all intensity to ensure that foreign exchange is procured by everybody.
“Indeed, we have started to see a downward trend even in prices and you must have observed that inflation is also trending downwards.

“We are very much optimistic that by the end of the second quarter, very latest third quarter, we should be out of the recession,” he said.
Emefiele added that FX would be made available to importers of raw materials and equipment, small business owners, and for the payment of school fees and other retail invisibles.
He also spoke on the new special FX window for investors and exporters aimed at improving liquidity to the market, and where the rate for the greenback will be market determined.

“I think what is important is that last week we brought out an announcement which is meant to encourage our foreign investor community to get involved in the foreign exchange market.
“It is the market or window that is open for them to inflow their foreign exchange and come into the market on what we call a willing buyer, willing seller basis, in which case there will be no form of any price fixing by anybody including the central bank.

“With the kind of firepower that we have, we are also going to play in that market to ensure that as prices move based on the managed float regime that we run, we should be able to control the price based on willing buyer and willing seller basis,” Emefiele added.
The Chairman of the Senate Committee, Banking, Insurance and Other Financial Institutions, Senator Rafiu Ibrahim (Kwara South), expressed satisfaction with the developments in the FX market.

He said the Senate in its interaction with Emefiele proffered some solutions, which would result in a different policy direction due to the need to attract foreign investments into the country and ensure that the interventions are sustainable.

“We have proffered more solutions and suggestions which will result in other policy directions very soon because it is imperative for us to attract foreign direct investments. So we are happy with what they are doing,” he said, adding that the Senate hopes to maintain a good working relationship with the CBN in the interest of the economy and the country.

Investors Sceptical

Despite Emefiele’s remarks on the new FX windows aimed at improving liquidity for investors and exporters, market participants have remained sceptical about the sincerity of the central bank to keep its word.

The CBN announced that it was opening a FX window for investors and exporters on Monday, where the naira would trade between the interbank rate and the parallel market rate.
In the weeks before the opening, Emefiele had told senior bankers that he would tolerate a weaker naira and allow the market to determine the rate within the new window, according to a person who attended the meetings, reported Bloomberg.

While the initial market reaction showed that investors were optimistic that the platform will be successful in bringing hard currency into Nigeria, analysts said policy makers would still have to demonstrate that the CBN will allow free trading, as investors have been disappointed in the past.
Last June, the central bank ended a 16-month currency-peg and promised to float the naira, but it has traded near 315 per dollar since August. That’s about 27 per cent stronger than its black-market price of 380.

“If this is going to be market-determined, that would be a great positive,” said Razia Khan, the chief Africa economist at Standard Chartered in London.
“Given the false start we had in June last year, there’ll be a certain amount of caution initially.”
Standard Bank Group analysts expect an initial “sharp but unsustainable” decline in the naira as investors and companies try to clear their unmet demand for dollars of about $4 billion.
If that happens, the central bank may start manipulating the rate again, which would discourage inflows.
“What is on paper may not actually be what is practised,” Standard Bank’s Lagos-based Ayomide Mejabi and Phumelele Mbiyo in Johannesburg said in a note on Monday.

CBN Sells $25m

But even as the market waited with bated breath for the CBN’s next move, it announced Tuesday that it had started its interventions in the new FX window for investors and exporters with the sale of $25 million through authorised dealers.
Making this known, CBN spokesman, Isaac Okorafor, reiterated that the window was established to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.

According to him, transactions under the new window include invisible transactions such as loan repayments, loan interest payments, dividends/income remittances, capital repatriation, management service fees, consultancy fees, software subscription fees, technology transfer agreements, personal home remittances and any such other eligible transactions, including miscellaneous payments as detailed under Memorandum 15 of the CBN Foreign Exchange Manual. It however excludes international airlines ticket sales’ remittances.

On the role of the central bank in the market, Okorafor said the CBN would be a market participant at the window to promote liquidity and professional market conduct.
The CBN Tuesday also announced that authorised FX dealers were unable to subscribe fully to the $150 million offered at the FX auction in the interbank wholesale window on Monday.

According to Okorafor, authorised dealers were only able to subscribe to $96.37 million in the interbank market Tuesday.
Okorafor did not give a reason for the inability of dealers to fully subscribe to the CBN offer in the interbank market.

However, industry sources said the under-subscription could have been caused by excess FX in the system.
The naira closed at N388 to the dollar on the parallel market Tuesday, stronger than N390 at the close of business Monday.