….External reserves now at US$31 billion as parallel rate moderates.
…Emefiele says Nigeria to exit recession in Q3 2017.
The jump in equities at the Lagos Stock Exchange in the last two days is being seen as an initial endorsement of the new foreign exchange window created by the Central Bank of Nigeria (CBN) although patience will be needed to allow the market to build its own momentum, Bloomberg reports traders as saying.
Last night the FX market got a significant anchor when Godwin Emefiele, CBN Governor said Nigeria’s foreign reserve has shot upt to $31bn at a time many had thought the reserve level would be falling on account of the aggressive supply stance of the apex bank.
The governor also said he was certain that the Nigerian economy would exit recession by the third quarter of 2017.
“Our foreign reserve today stands at above $31 billion and that provides us enough of 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. If you want to import raw materials, you will get foreign exchange, you want to import plant and equipment, you will get foreign exchange, you want to pay school fees or you are a small business that wants to buy foreign exchange for you to import your small items, you will procure foreign exchange,” the CBN governor said.
According to him, “we are very much optimistic that by the end of the second quarter, very latest third quarter, we should be out of recession that we are in right now.
Emefiele said the intervention of the Central Bank in the foreign exchange market has led to appreciation of the naira against the dollar and helped Nigeria to avoid a devastating inflationary spiral.
The recent intervention to create a new FX market, he said, was meant to encourage foreign investors to get involved in the foreign exchange market.
Explaining the new window opened for foreign investors and exporters, he said “It is the market or window that is opened for them to inflow their foreign exchange and come into the market on what we called a willing buyer, willing seller basis, in which case there will be no form of any price intervention by anybody and indeed, even including the Central Bank.
“Indeed with the kind of firepower that we have, we are also going to play in that market to ensure that as the prices move on, based on the managed float regime that we run, that we should be able to control the price, based on willing buyer and willing seller basis.”
The CBN opened a foreign-exchange window for investors and exporterson Monday, where the naira trades between the interbank rate and the black-market rate, which many Nigerians use to access dollars, and it quickly spiked interest in Nigerian equities — bank stocks rose and naira forward contracts priced in a weaker currency.
The initial market reaction seems to show that investors are optimistic the platform will be successful in bringing hard currency into Nigeria but some traders say policy makers still must demonstrate that they will allow free trading.
“If this is going to be market-determined, that would be a great positive,” said Razia Khan, chief Africa economist at Standard Chartered Plc in London.”
JPMorgan Asset Management says investors may be enticed into the market if they’re confident there’s enough liquidity for them to exit.
“It’s early days to gauge how effective the new window will be,” Diana Kiluta, an emerging markets debt portfolio manager at JPMorgan Asset Management in London, said in an emailed response to questions. “If indeed foreign investor flows can consistently clear in the window and there is some transparency around price determination, this could begin to restore some confidence.”
Unlike a currency flotation in Egypt where a massive spike in inflation has remained out of control, Nigeria’s Central Bank has introduced a staged approach as well as a resort to forward contracts to meet demand for dollars.The Central Bank says the separate window will help “deepen the foreign exchange market and accommodate all foreign-exchange obligations.”
Those allowed to sell dollars into this new market include portfolio investors, exporters, banks and the regulator itself and some of those eligible to buy FX on the market are also able to buy on the spot market and this probably explains why the new market will not be overwhelmed with demand.
Trades are meant to be done on a willing-buyer, willing-seller basis and the Central Bank said last night it does not intend to use its intervention to manipulate rates on the new window.
The FMDQ OTC Securities Exchange, a Lagos-based trading platform, will publish daily rates, based on a poll of banks, with Monday’s closing rate set at 375 per dollar.
“There was acknowledgment from policy makers that greater flexibility in the FX regime was needed,” Khan said.
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