CBN’s Godwin Emefiele: Strategy buoys Naira value, external reserves

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Current reports across markets indicate that Central Bank of Nigeria’s long-haul strategy may have a sustained positive results in the area the apex bank had been most vulnerable – foreign exchange market and the external sector.

Despite the huge foreign exchange resource deployment to counter speculators in the Nigerian currency market, the external reserves reached a 17-month high yesterday at USD30.1 billion, indicating a new threshold in the external sector strategy of the Central Bank of Nigeria, CBN.

The apex bank has been in a battle to save the local currency from speculative attacks since 2015, at the backdrop of worsened foreign exchange inflow orchestrated by the sharp drop in the oil prices, Nigeria’s major foreign exchange earner.

Consequently, the external reserves began a steady depletion trend from USD31.8 billion mid-2015, hitting the lowest point of USD23.9 billion on the 19th October 2016.

Godwin Emefiele, Zenith MD

However, a combination of deft strategies by the CBN and the fortune of oil price and output rebound in the fourth quarter of 2016 ensured a reversal of the decline with a sustained accretion and build up since then leading to yesterday’s figures which was the level as at November 26, 2015.

The key strategy of Godwin Emefiele’s CBN in the face of the twin problem of speculative attacks and decline in oil earnings, was foreign reserve preservation within the acceptable import cover benchmark of about USD23 billion, which the apex bank achieved substantially.

Consequently, the forex policy strategy was elevated two weeks ago, to counter-speculation and grip on parallel market rate.

The policy appeared to be recording success, forcing parallel market rates to reverse from N520/ USD1 to about N455/ USD1 within two weeks of launch.

Hopes of further appreciation have remained high with the latest development in the external reserve.

The external reserve has risen by $4.2 billion since the beginning of the year, and by $6.2 billion since October 19th, 2016 when it commenced its upward trend.

Part of the measures Emefiele’s CBN has adopted involved absorbing a key segment of the market, the Bureau de Changes (BDCs) into its scheme, thereby earning their confidence and support.

This week, CBN supplied $25 million to the BDCs prompting the parallel market exchange rate to reverse to N455, a N10 gain.

This development was in sharp contrast to the N17 depreciation suffered by the naira on Monday against the dollar due to upsurge in demand by importers travelling to China.

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President of BDCs association, Aminu Gwadabe, expressed optimism that the Naira will further appreciate in the coming week, based on expectation of increased dollar supply.

CBN has intervened in the forex market six times as follows: Tuesday February 21st, $417 million; Thursday February 23rd, $231 million; Monday February 27th, $180 million; Friday March 3, $350 million, Monday March 6, N367 million; and on Tuesday with $100 million.

Acting Director, Corporate Communications Department, CBN,  Isaac Okorafor, said  that the move by the apex bank was to fund the commercial banks with enough forex to cater for the request of customers to meet personal travelling allowance (PTA), basic travelling allowance (BTA), medicals and tuition fees.

Commending the move, market analysts observe that it will further create problems for currency speculators who are yet to recover from the sudden appreciation of the Naira.

According to the former Economic Adviser to the President and Minister, National Planning Commission, Professor Ode Ojowu, “It appears this time around, the CBN has decided to become smarter than the market manipulators, by putting on its cap of authority to look beneath the market forces.”

Analysts believe if this development is sustained the apex bank would also achieve its core-mandate of price and exchange rate stability.

It will be recalled that the CBN, in February 2017, changed its forex rule to guarantee supply to both small and the big end-users. The policy has restored stability and bolstered market confidence which has ultimately boosted the value of the Naira.

CBN has injected about $1.12 billion in since its elevated forex strategy began two weeks ago.

With its willingness, capability, and determination to meet forex demand in the market, and in order to further increase foreign exchange availability to all end-users and ensure that a fair and verifiable exchange rate operates in the market, the apex bank earlier this week, directed all banks to open a teller point for retail forex transactions, including buying and selling, in all locations in order to ensure access to foreign exchange by their customers and other users, without any hindrance.

The apex bank disclosed this in a circular with Ref: FMD/DIRlCIRlGEN/08/006 date March 3, 2017 signed by Dr Alvan E. Ikoku Director, Financial Markets Department that all banks must have an electronic display board in all their branches; showing rates

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of all trading currencies, and customers must insist on processing Forex transactions based on the displayed rates.

CBN further said that all banks are mandated to process and meet the demand for Travel Allowances

(PTA/BTA) by end-users within 24 hours of such application, as long as the end- users meet basic requirements already outlined in earlier directives.

It said that banks are mandated to process and meet demands for school fees and medical bills within 48 hours of such application.

The apex bank added that the directive is effective immediately, and non-compliance would attract

sanctions, including but not limited to being barred from all future CBN foreign exchange interventions.

Benefits of CBN’s new forex policy

Some of the benefits of the new forex policy includes direct access to forex by more Nigerians through the banks; CBN’s adequate funding of personal and business travels, as well as school fees for Nigerian students which are paid directly to specified institutions through banks; Medical bills by Nigerians are now paid directly to the specified hospitals abroad through the banks.

Also the new policy provides that all retail transactions should be settled at a rate not exceeding 20 per cent above the prevailing inter-bank market rate.

Under the new policy banks receive forex to be sold to customers commensurate with their demand per week, while supply of forex to retail end-users would be sustained by the CBN.

CBN’s forward sales tenor was significantly reduced from the current maximum cycle of 180 days, to no more than 60 days from the date of transaction, while banks are now opening forex retail outlets at major airports to ease travelers’ burden and ensure settlement on transactions.

Also under the new policy, the apex bank re-enforced its priority attention in forex allocation to the manufacturing sector, while allocation/utilisation rules on commercial banks was removed.

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