The Central Bank of Nigeria (CBN) yesterday pledged to sustain its recent dollar supply tempo to help improve FX availability in the economy and bring an end to the current recession.
The CBN made its position known, even as new data showed that the economy contracted for a fifth consecutive quarter by 0.52 percent year on year (YoY) in the First Quarter (Q1) of 2017 according to the National Bureau of Statistics (NBS).
This compares to the revised contraction of 1.73 percent in the fourth quarter of 2016 and a revised 0.67 percent contraction in the comparable first quarter of 2016.
“The CBNs intervention will be more rigorous and intense by making foreign exchange more available to all sectors of the Nigerian economy,” CBN Governor Godwin Emefiele, said in a news briefing on the outcome of the two-day Monetary Policy Committee (MPC) meeting in Abuja.
“I still hold the position that by the end of the third quarter of 2017, we will be out the recession.”
The MPC also voted to retain the Monetary Policy Rate (MPR) at 14 percent, Cash Reserve Ratio (CRR) at 22.5 percent, as well as Liquidity Ratio at 30 percent.
They maintained the asymmetric corridor around the MPR unchanged at +200 and -500 basis points.
Emefiele said the policy retention is intended to allow the existing policies to fully achieve their goals and objectives.
Africa’s largest economy derives more than 90 percent of its export earnings and 60 percent of its fiscal revenue from oil and gas proceeds.
Nigeria is still undergoing a severe economic alignment in the context of lower oil prices, which has resulted in reduced US dollar supply and lower GDP growth, Moody’s Investor Services said in a recent report.
“The constrained US dollar supply continues to hurt corporates’ operations and profitability, especially those affected by a ban on accessing Nigeria’s official foreign-exchange markets for purchases of certain imported items,” Moody’s said.
About $1.1 billion has flowed through the new importers and exporters (I & E) FX window in the last four weeks, with the CBN intervention in that segment of the market at less than 30 percent, Emefiele said.
The rest were made up of non-oil exporters and Foreign Portfolio Investments (FPI), according to Emefiele.
Investors are gradually returning through the I & E window to play in Nigeria’s equity and bond markets, according to Bayo Adeyemo, country treasurer and markets head at Citi Bank Nigeria.
“Things have improved and it is now up to the CBN to stay the course and allow more transparency, as there is room for more flows to come in.”
The I & E foreign exchange window closed trading at N382.31 per dollar on Tuesday, data from the FMDQ show.
Although the GDP contraction may weigh heavily on sentiment moving forward, it should be kept in mind that it remains the best performance seen in four quarters, said Lukman Otunuga, Research Analyst for FXTM.
“With many sectors of the Nigerian economy turning positive, the overall outlook still looks encouraging with the bullish impacts likely to be realised in the second and third quarter of this year.”
Emefiele noted in his statement that the MPC is particularly pleased with the gradual fall in inflation, which moderated, marginally to 17.24 percent in April as against 17.26 in March 2017.
On the financial stability outlook, the committee noted that in spite of the banking sector resilience, the weak macro-economic environment continues to exert pressure on the system.
The Committee therefore urged the CBN to intensify surveillance to tackle emerging vulnerabilities. It also asked the banks to step up credit to the private sector to support economic recovery and convey a positive feedback to the financial system.
Ayodeji Ebo, Managing Director, Afrinvest Securities limited said The MPC’s decision was broadly in line with expectation and analysts’ consensus.
“We expect the renewed investor sentiment in the Nigerian capital market will be sustained as the CBN has reaffirmed its commitment to ensure the dynamics of demand and supply play out in the I&E FX window. “Besides, lowering MPR now will not translate into improved lending, as the risk within the real sector remains evident.
That said, the fiscal managers should consolidate on the current FX market gains by channelling more effort to the successful implementation of the approved government policies targeted at lifting the economy out of recession.
PATRICK ATUANYA, HOPE-MOSES ASHIKE, Lagos ONYINYE NWACHUKWU Abuja
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