//temp lines forclearing console erros $variable = $_SERVER['REQUEST_URI']; if (str_contains($variable, '/page/')) { $variable = substr($variable, 0, strpos($variable, "page/")); header('Location:' . $variable); } ?>

  • Sunday, June 23, 2024
businessday logo

BusinessDay

FX: Cardoso says investor confidence returning after market cleanup

Olayemi Cardoso, Governor, Central Bank of Nigeria (CBN) said on Tuesday that investors are beginning to return to Nigeria following series of measures the apex bank has taken so far to sanitize the foreign exchange market.

Some of those, according to him were measures to bring the much-needed transparency into the market and the settlement of “all valid” foreign exchange backlogs to industries and foreigners, which the apex bank said amounted to $7 billion.

Cardoso made the assertion while briefing the press on the outcome of the two days meeting of the Monetary Policy Committee (MPC) which for the third straight time this year, raised the benchmark interest rate by 150 basis points to 26.25 percent, to tackle inflation and bolster the ailing naira.

Read also: CBN raises rate for third straight time to 26.25% in defence of naira

The committee also retained the asymmetric corridor around the MPR at +100/-300 basis points, Cash Reserve Ratio of Deposit Money Banks at 45.00 per cent and Liquidity Ratio at 30.00 per cent

The meeting held amid concerns for the weakening naira and inflation which rose further to 33.69 per cent in April 2024, from 33.20 per cent in March, driven by both the food and core components.

“The key focus of the MPC at this meeting remained to achieve price stability by effectively using tools available to the monetary authority to rein in inflation,” Cardoso stated.

According to him, the recent volatility in the foreign exchange market was also noted in the market and was attributed to what the committee members saw as a “seasonal demand, a reflection of the interplay between demand and supply in a freely functioning market system.”

But reacting to one of the questions raised during the briefing on hesitancy of investors to return to the Nigeria, the Governor simply dismissed such views and noted that the reverse has rather been the case.

He said, “It is not the case at all. As with any market, there is free entry and free exit and that is what you expect- whether it is foreign exchange, stock market, or financial market, this is how they work. And what we have seen is that portfolio investors do come in and at a certain level they go out again. And that is normally how we expect those markets to function.

“The bigger issue is that of confidence in the market, because if there is no confidence, then we have a problem and I can say from every indication, from the feedback that we have been getting and I must say that we have had a considerable amount of dialogue with foreign investors. From the time I came into the bank and have been consistent, we have a pretty good feel of what the requirements are and what they look for.

“ We have attempted as much as possible to make the market a lot more transparent in our dealings which of course foreign portfolio investors want to see and which gives them added confidence and we have seen that they have responded very positively to the initiatives.

“The disruptions that we have had over time have resulted in a multiplicity of different circulars to address certain things have helped in no small measure and the confidence has also come back.

Cardoso further noted that, the decision to prioritise the issue of backlogs was basically to give more confidence to those who want to come in and invest.

“…It doesn’t really doesn’t give confidence that if there is a backlog and no one knows where it is standing, it creates anxiety and that is why it was important to prioritise the clearing of the backlog. What we are seeing is a renewed and continued interest in investing in the country.

“When you look at the rating agencies like Fitch who recently moved us up to positive that also gives further confidence to those who want to invest. That has to be married with consistency in reforms, what we see generally is a positive outlook from asset.

Cardoso equally doused fears that inflation was worsening but that it was rather moderating and assured that the pressure will ease over time.

“In terms of looking at the inflationary pressure over the past year, it may appear that inflation is indeed getting worse, and frankly, I think there is light at the end of the tunnel, and that is because much as we see an increase in inflationary figures, when we go down to the specifics in terms of food, in terms of core, headline inflation, you’ll see that it is moderating and decelerating in increment, and that’s the good news.

“I believe very strongly, that the tools that the central bank is using are working, there’s no magic wand, these are things that need to take their own time, the pass-through and the effect of the measures in advanced countries in developing countries, but at least the figures show that we are beginning to get some relief. And I believe that in another couple of months or so time, we will see more positive outcomes from what the central bank has been doing.”

On the widely condemned Now cybersecurity levy which the CBN finally on Monday instructed banks to stop collecting, Cardoso explained that it was introduced by the the Cyber Crime Act in 2015 which was enacted by the parliament and debated during statutory public hearings before passage.

“The act introduced the levy. It is important to say that given that it is an act, it was considered extensively by both houses, both the House of Representatives and the Senate, and of course there was a public hearing as a result. After that, there was, the issue of the levy which was stated clearly, as 0.5 per cent was embedded within the final law.

“As central bank and as bankers to the government, we were merely implementing the law that had been enacted, and subsequently, as the federal government amended its position, we withdrew the circular that we issued to the various banks.”

On banks recapitalisation, he said the plan is not to put pressure on them but to ensure that the banking system is strong, resilient, and more robust, particularly considering the $1 trillion economy that the federal government is anchoring itself towards.

“We need a banking system that will have sufficient shock absorbers in the case of any uncertainties within both domestic and international ecosystems.

“I am very happy to say that the banking system is indeed sound safe and fit for purpose as far as we can see, so there is nothing for anybody to have any anxieties about.

“We have gotten much of the feedback from the banks with respect to what their plans are and again, to emphasise to those of you who may not remember, we gave them a long gestation period really to do this and we are hoping that the recapitalisation program will be wrapped up within two years.

Please enable JavaScript to view the comments powered by Disqus.
Exit mobile version