Thursday, July 09, 2015 9:09AM / FBN Capital Research
Advocates of policy change at the CBN will be disheartened by the opening remarks made yesterday by the governor, Godwin Emefiele, in his address to the Senate in Abuja on the Nigerian economy. We have to start with the passionate defence of the pursuit of exchange-rate stability.
Pressures on the naira can be traced to the slide in the oil price. This is self-evident, and we welcome the governor’s reference to the “seemingly permanent fall” in the price. If all members of both the executive and legislature shared this conservative view, then the transformation of the economy could be advanced with one less obstruction.
The impact of the oil price fall has been exacerbated, the governor argues, by the conduct of the banks in the fx market. Pledging “zero tolerance for speculators”, he lists the steps taken by the CBN to close perceived loopholes from the suspension of the auctions through to the circular covering the 40 import items no longer eligible for fx.
The governor notes a recovery in reserves to US$31.9bn as at 07 July. This compares with a rather lower figure of US$29.6bn on the CBN website on a 30-day moving average basis. We conclude that the trend in reserves is positive on both a “vanilla’ and a moving average basis.
The remarks dwell at length on the CBN’s role of intervention to support job creation and inclusive growth. Increases in domestic production of staples such as rice and policies to encourage local processing of raw materials would support employment, the naira exchange rate and the balance of payments.
The governor cites examples of abandoned oil palm plantations and moribund textile factories. He might have added the underperforming NNPC refineries.
We would question the suggestion that similar intervention by the CBN has delivered on jobs and growth since 1978 but endorse the thrust of the policy.
The governor lists the US-led sanctions on Russia as a critical influence on Nigeria, along with end of QE in the US and the oil price fall. They have improved the investment profile of Nigeria relative to Russia and Central Asia.
These are the views of the governor. Yet, we repeat our argument that, while officials come and go, both the CBN and the MPC enjoy considerable autonomy. Their preference for managed exchange-rate stability is well established.
1. Another decline in reserves – Jul 07, 2015
2. Welcome stability in reserves – Jun 04, 2015
3. Further decline in FAAC distributions – May 19, 2015
4. A modest decline in reserves – May 07, 2015
5. A further sharp decline in reserves – May 05, 2015