Nigeria does not see its foreign exchange reserve level falling to $30 billion and so is not contemplating a currency devaluation anytime soon, a senior Central Bank (CBN) official told BusinessDay last night.
It had been reported last week that CBN Governor Godwin Emefiele had told investors in London the apex bank would consider a review of its exchange rate management mechanism if the reserves were to fall below $30bn.
However, the senior CBN official said “the bank does not see reserves falling to that level given the stability in oil prices”.
“In any case, the talk about setting the reserve level as a trigger for an adjustment of the Central Bank position on the exchange rate must also be linked to oil prices. The Central Bank closely watches this as well as the reserve level,” the official said.
According to the high level CBN official, “Our view is that both have to be taken together. For as long as oil prices remain in the $50-60 per barrel range, we do not think there should be any panic and even then we do not think reserve levels will fall to below $30bn. Remember that the last devaluation took place at a reserve level of $23bn.”
He said the current government “came in at a time the reserve was $31bn and we did not devalue, so there is no question of a devaluation simply as a result of the reserve level falling to $30bn”.
Also speaking on Friday evening at the bankers’ dinner in Lagos, Emefiele highlighted Nigeria’s healthy reserve level as well as improved foreign exchange inflows into the country. He attributed this to “the impact of a tighter monetary policy regime, attractive yields in the money market, and our efforts at supporting domestic productivity in the agriculture and manufacturing sectors, along with improvements in oil production”.
“In the I&E window, over $60 billion worth of transactions have taken place since the inception of the window in April 2017, and our foreign exchange reserves are above $40bn as at October 2019, relative to its low point of $23bn in October 2016,” Emefiele said.
“We have been able to build our reserves in the midst of lower oil prices, as strong reserves aid the confidence of domestic and external investors. Today, our current stock of external reserves is able to finance nine months of current import commitments,” he said.
On exchange rate, Emefiele said “with a moderated inflation rate, positive GDP growth and improvements in our external reserve position, the naira-dollar exchange rate at the I&E window has remained stable for the past 29 months at N360-$1 and we have witnessed significant convergence in the exchange rate across the various market windows”.
BusinessDay analysis shows that the futures market has remained at the spot level for a long spell and traders said savvy investors have been using the market to hedge, a clear indication of a much-improved forex situation and of the absence of panic.
FX reserve unlikely to fall to $30bn, no devaluation on the horizon – CBN
