Central bank governor, Godwin Emefiele, Wednesday, allayed concerns surrounding the FX backlog in Africa’s largest economy, as he disclosed that the Central Bank had sufficient reserves to surpass pent up dollar shortages.
The outstanding backlog of unpaid letters of credit (LCs) had given way to structural problems in the foreign exchange market and had seen businesses in 180 million Nigeria struggle to stay sustain production output.
“There is enough dollars to clear up the backlog, as well as feed the interbank market subsequently. The only concern now is the capacity for the primary dealers to deliver,” Emefiele said.
Emefiele had announced that foreign currency purchases in Nigeria will be on the interbank market from Monday June 20.
To address the illiquid foreign exchange market, which has been gummed up for almost a year, the governor disclosed that the CBN will intervene through primary dealers who will feed the market as well as clear the FX backlog which had mounted following the introduction of a hard currency peg.
Emefiele said there will be a single FX market and promised that the market will be transparent and warned speculators to stay away off the market.
“There is only one window and that is what it will be. We will ensure that there are no rent seekers and speculators,” said Emefiele.
Chinwe Egwim, a fixed income analyst at FBN Quest, is of the view that the FX liberalisation should help reduce the level of froth demand in the system.
Bayo Adeyemo, country treasurer at Citi Bank in reaction to the MPC’s policy shift, says investors will be upbeat, as the move resolves the uncertainty that trailed May 24’s announcement to adopt a more flexible foreign exchange market, although with no clear guidelines.
“Investors could not have asked for more, and I feel the CBN has taken a bold step. This will go a long way in clearing the Fx backlog in the market and well as restore liquidity,” he said.
Analysts say the certainty the FX guidelines have brought will boost investor confidence and trickle down to restoring forex inflow to the country.
“There will be an immense level of confidence in the market. It will attract FPI inflow which has been on the side-lines amid an uncertain environment,” said Kyari Bukar, chairman of Nigeria Economic Summit Group (NESG).
The governor added that the 41 items earlier banned from accessing foreign exchange will go unabated as policy makers in 180 million Nigeria explore strategies to cut down import appetite and boost exports.
He also noted that exporters will now be allowed to sell their export proceeds on the interbank market at the ruling rate, as against the N199 official rate which had short-changed exporters and discouraged exports.
