December 16, 2019 /08:45 AM / By FBNQuest Research /
Header Image Credit: Market Watch
The CBN and the monetary policy committee like to share the success of their "heterodox" policies on the exchange rate, strategy in debt markets and development finance. On the exchange rate, the policy has been a resounding success on the CBN's chosen criteria. The premium that market participants have to pay at the bureaux de change has been stable for more than two years. Foreign portfolio investors (FPIs) are comfortable with their window (NAFEX), and fx is available for all users through the various windows and auctions held.
The chart only runs to August but the story has barely changed.
The CBN has featured among the suppliers of fx at NAFEX (investors' and exporters' window) over the past four weeks but has not been the leading supplier since the week ending 08 November. Typically it is the leading weekly source when it has to smooth the exit of FPIs in large numbers.
Those exits have slowed according to anecdotal evidence because in our view: the FPIs find the global picture less threatening than previously; the halt to easing by the Federal Reserve is based upon a positive take of the domestic US economy; and the oil price has settled into a range of US$60/b to US$65/b, supported by additional output restraint agreed by OPEC+.
Average exchange rates (NGN per USD)
Sources: CBN; FBNQuest Capital Research
Understanding a policy requires a feel for the institutions and individuals that set it. The CBN has a preference for managed rates and the senior employees to operate them. It does not have experience of genuinely market-determined, let alone floating rates. Nor does any sizeable oil producer among EMs operate along such lines.
A change of direction will only come when there is no alternative. If the oil price was to tank or FPIs were to leave en masse, or a combination of both for example, but these are not our projections or expectations.