November 21, 2011
The Central Bank of Nigeria has said it will move more of the country’s foreign exchange reserves in euro to the Chinese renminbi.
This, according to the apex bank, is due to the financial crisis that has affected most European economies.
The bank also said it had reached the desired degree of stability for the naira and did not have any cause to be concerned over inflation due mostly to recent stability in its core components.
The CBN Governor, Mr. Sanusi Lamido, told Reuters on Saturday that the bank might reduce its exposure to the euro currency, adding that it was working to increase its forex into renminbi.
He said, “We have not increased exposure to the euro since the crisis started in Europe. We have held more and more United States dollars. We have missed the train on the Swiss franc; I wish we had gone in earlier. I think we also missed the train on the gold, I wish we had gone in earlier.
“But we are trying to move some into renminbi, and while we move some dollars, we will probably move more out of the euro.”
Asked if this meant arbitrage deals to the detriment of the euro, Sanusi said, “Most likely.”
Reuters reported that the CBN governor was not as concerned about the euro currency as he was about the fortunes of European economies.
“If they go into a deep recession, it is likely to affect commodity prices, and with that, the price of oil; and then, it will come with difficulty for us in terms of the fiscal position of the government, the reserves positions and the exchange rate,” he said.
The bulk of Nigeria’s oil exports go to the United States, with the CBN governor saying, “The US and Europe together account for about 80 per cent or more. What we export to China and African countries is probably about 20 per cent.”
Sanusi reckoned that any crash in oil prices from a potential recession in Europe would not be as acute as it was in 2008.
He said, “The (oil) market is a little bit tight at the moment. Libya will take time to get back on stream; Iraq is back on stream...The market seems to be driven by fundamentals. So, the crash in oil price, in the event of a recession, is not likely to be as steep as it was in 2008 for example.”
“There would be a decline in demand but the supply condition is also tight...I think there would be a collapse if there is a recession, but it will not be anywhere near what we saw in 2008.”
Sanusi who spoke before this week’s Monetary Policy Committee Meeting, maintained that the naira had attained its desired stability.
“When the naira reached N167 (to the US dollar in October), every currency was going through a crisis...Now, we have retraced that. We have created the stability that we needed. We have stopped the panic,” he said.
Asked if the CBN had reached the desired degree of stability for the naira, Sanusi said, “I think we have, and I think that within the next few days, you might hear an announcement on what the sense is.”
Inflation rose to 10.5 per cent in October from 10.3 per cent in September, but the apex bank governor said a breakdown of month-on-month numbers showed that “inflation has come down on all three components: headline, core and food inflation.”
“Year-on-year, core (inflation) hasn’t increased, which has not been the increasing trend seen in the past. Month-to-month (inflation) has been moderating and core (inflation) is also not increasing (which) would suggest that as far as non-structural components are concerned at this moment...we don’t have a cause for concern.”
Source: Punch / Written by Okechukwu Nnodim with agency report