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Emefiele Pledges to Sustain FX Interventions as Reserves Hit $31bn

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  • Emefiele Pledges to Sustain FX Interventions as Reserves Hit $31bn

Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, has revealed that the country’s foreign reserves have exceeded $31 billion, a development which he said gives the central bank the firepower to sustain its forays into the foreign exchange market.

He also expressed optimism that Nigeria would exit the recession by the end of the second quarter of 2017, or latest by the third quarter of the year.

Emefiele made the remarks on Tuesday when he briefed newsmen after a closed-door meeting with the President of the Senate, Dr. Bukola Saraki, and some senators to brief the Senate on its FX policies and interventions in the market.

He added that the interventions of the central bank in the FX market resulted in the appreciation of the naira in the parallel market from N525 to N370 to the dollar, with the rate currently hovering at between N370 to N380.

Emefiele said the gains made by the local currency and corresponding drop in inflation were indications that the country was on its way out of the recession.

“I think it’s an opportunity for me to say that we are going to continue this intervention because the reserves look very good. As I speak to you, our reserve stands at above $31 billion and that provides us enough 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.

“Indeed, we have started to see a downward trend even in prices and you must have observed that inflation is also trending downwards.

“We are very much optimistic that by the end of the second quarter, very latest third quarter, we should be out of the recession,” he said.

Emefiele added that FX would be made available to importers of raw materials and equipment, small business owners, and for the payment of school fees and other retail invisibles.

He also spoke on the new special FX window for investors and exporters aimed at improving liquidity to the market, and where the rate for the greenback will be market determined.

“I think what is important is that last week we brought out an announcement which is meant to encourage our foreign investor community to get involved in the foreign exchange market.

“It is the market or window that is open for them to inflow their foreign exchange and come into the market on what we call a willing buyer, willing seller basis, in which case there will be no form of any price fixing by anybody including the central bank.

“With the kind of firepower that we have, we are also going to play in that market to ensure that as prices move based on the managed float regime that we run, we should be able to control the price based on willing buyer and willing seller basis,” Emefiele added.

The Chairman of the Senate Committee, Banking, Insurance and Other Financial Institutions, Senator Rafiu Ibrahim (Kwara South), expressed satisfaction with the developments in the FX market.

He said the Senate in its interaction with Emefiele proffered some solutions, which would result in a different policy direction due to the need to attract foreign investments into the country and ensure that the interventions are sustainable.

“We have proffered more solutions and suggestions which will result in other policy directions very soon because it is imperative for us to attract foreign direct investments. So we are happy with what they are doing,” he said, adding that the Senate hopes to maintain a good working relationship with the CBN in the interest of the economy and the country.

Investors Sceptical

Despite Emefiele’s remarks on the new FX windows aimed at improving liquidity for investors and exporters, market participants have remained sceptical about the sincerity of the central bank to keep its word.

The CBN announced that it was opening a FX window for investors and exporters on Monday, where the naira would trade between the interbank rate and the parallel market rate.

In the weeks before the opening, Emefiele had told senior bankers that he would tolerate a weaker naira and allow the market to determine the rate within the new window, according to a person who attended the meetings, reported Bloomberg.

While the initial market reaction showed that investors were optimistic that the platform will be successful in bringing hard currency into Nigeria, analysts said policy makers would still have to demonstrate that the CBN will allow free trading, as investors have been disappointed in the past.

Last June, the central bank ended a 16-month currency-peg and promised to float the naira, but it has traded near 315 per dollar since August. That’s about 27 per cent stronger than its black-market price of 380.

“If this is going to be market-determined, that would be a great positive,” said Razia Khan, the chief Africa economist at Standard Chartered in London.

“Given the false start we had in June last year, there’ll be a certain amount of caution initially.”

Standard Bank Group analysts expect an initial “sharp but unsustainable” decline in the naira as investors and companies try to clear their unmet demand for dollars of about $4 billion.

If that happens, the central bank may start manipulating the rate again, which would discourage inflows.

“What is on paper may not actually be what is practised,” Standard Bank’s Lagos-based Ayomide Mejabi and Phumelele Mbiyo in Johannesburg said in a note on Monday.

CBN Sells $25m

But even as the market waited with bated breath for the CBN’s next move, it announced Tuesday that it had started its interventions in the new FX window for investors and exporters with the sale of $25 million through authorised dealers.

Making this known, CBN spokesman, Isaac Okorafor, reiterated that the window was established to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.

According to him, transactions under the new window include invisible transactions such as loan repayments, loan interest payments, dividends/income remittances, capital repatriation, management service fees, consultancy fees, software subscription fees, technology transfer agreements, personal home remittances and any such other eligible transactions, including miscellaneous payments as detailed under Memorandum 15 of the CBN Foreign Exchange Manual. It however excludes international airlines ticket sales’ remittances.

On the role of the central bank in the market, Okorafor said the CBN would be a market participant at the window to promote liquidity and professional market conduct.

The CBN Tuesday also announced that authorised FX dealers were unable to subscribe fully to the $150 million offered at the FX auction in the interbank wholesale window on Monday.

According to Okorafor, authorised dealers were only able to subscribe to $96.37 million in the interbank market Tuesday.

Okorafor did not give a reason for the inability of dealers to fully subscribe to the CBN offer in the interbank market.

However, industry sources said the under-subscription could have been caused by excess FX in the system.

The naira closed at N388 to the dollar on the parallel market Tuesday, stronger than N390 at the close of business Monday.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Brent Crude Oil Approaches $70 Per Barrel on Friday

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Crude oil

Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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opec

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

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Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

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