Thursday, March 30, 2017 5.00pm/Proshare WebTV
Stakeholders in the Nigerian financial markets and economic space, today examined Nigeria’s foreign exchange market as it affects the economy. This was courtesy the 6th Detail Business series a roundtable organized by leading Nigerian commercial solicitors Detail Nigeria.
Giving the keynote presentation at the event, notable Nigerian financial analyst and CEO Financial Derivatives Mr Bismark Rewane said in the last 2 months the Central Bank of Nigeria had disbursed about $2.45bl to the foreign exchange market.
Out of the $2.45bl Mr Rewane noted that $735ml went to the spot market, while the forwards got $1.715bl from the CBN intervention. Rewane observed that the interventions are already having an impact on the external reserves.
Assessing the economic indicators affected by the forex, Mr Rewane stressed that so far they had been lower FDIs and FPIs in terms of capital flows, a low PMI of 44.6 for January, 2016 , decline in Corporate earnings, high inflation regime which eased to 17.78 in February, 2016 , contraction in GDP (-1.3% in Q4,2016, FY’16 -1.5%) and slowdown in pace of accretion expected as forwards contracts mature for the External reserves.
Addressing the issue of currency and inflation, he told stakeholders that a currency with high inflation is unlikely to appreciate against a currency with low inflation. (Nigeria 17.78% naira, United States 2.7% dollar)
Key sectors according to him that have been affected by the foreign exchange market include manufacturing, financial services, oil and gas and the aviation sector.
He listed as risks to the foreign exchange market; decline in oil price going below $45 per barrel, reduction in oil production falling below 1ml bpd, depletion of the foreign reserves falling below $25bl, vulnerability to external shocks and recession and policy reversal.
On the outlook for the market, Rewane outlined the following; convergence of rates, pressure on the external reserves, improvement in terms of trade and a likely short-term appreciation of the currency due to fundamentals that remain weak.
Also speaking at the roundtable, Mr Sonnie Ayere CEO of DunnLorrenMerrifield in his intervention emphasized the need for policies in the country that is pro-growth for the economy. He said these policies must focus on tackling the cost of production.
The bond market expert said the management of the situation in the Niger-Delta was vital to the forex market, as the stability in oil price(above $45) and production capacity (2.2-2,5ml bpd) remained the key factors that will shape the market.
Ayere described the interest rate regime as critical in tackling inflation in the country, with a great impact on the country’s economy also affecting the forex market. He said the interest rate needs to be dropped to the level that banks can assist the real sector.