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Official Exchange Rate Is Redundant, Soludo Tells CBN |The Republican News

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Former Central Bank Governor, Prof. Charles Soludo

Oyetunji Abioye

A former Governor of the Central Bank of Nigeria, Prof. Charles Soludo, says the apex bank’s official exchange rate of N306 to the dollar has become redundant, describing it as an instrument for rent seekers and arbitrary allocation of scarce foreign exchange in the country.

As a result, he said the CBN must achieve a unified market-determined exchange rate by eliminating the current multiple exchange rates as a matter of urgency.

Soludo spoke in a keynote address at the eight annual Pan-Africa Investor Conference organised by Renaissance Capital, an international investment bank, in Lagos on Wednesday.

He said, “The general price level has already adjusted because that’s the primary price indicator in the market. The prices that people hear, i.e. the exchange rate that people talk about is the parallel market rate. Anybody who says it is irrelevant is not discussing Nigeria as an economy. The official one is like the time when you had the price control regime.

“Even those who had accessed forex at the official rate, when they are fixing their prices, they are fixing their prices in comparison with the imported ones, which are taking signals from the parallel market rate. So the general price level has adjusted there. The official exchange rate is redundant; it is just for rent and for arbitrary allocations.”

Soludo also advised the CBN to dump its current import substitution policy and adopt an export-oriented industrial strategy if it hoped to take Nigeria out of its present economic woes.

According to him, the country is implementing import substitution is a crude way and it must remove the ban placed on importers of some 41 items from accessing dollars at the official interbank foreign exchange window.

The former CBN governor said, “Every regime comes to ban and the next unbans it. That is not the way to protect an economy. If you have a market-determined exchange rate regime and you do not want certain items, you put tariffs. The exchange rate plus the tariffs will make, for instance, the imported tomatoes uneconomical.

“That is where you deal with it on a sustainable basis. There is a need to think of a life beyond crude oil. We need not just import substitution; we need infrastructure and export-oriented industrialisation strategy. We cannot do that with this kind of crude inward look.”

According to Soludo, China has over one billion population and has become a successful country through export-oriented industrialisation, adding, “China was not doing import substitution.”

“That’s why they have built trillions of dollars in foreign reserves with weak currency that makes import into their country expensive and makes exporting very rewarding,” he added.

The former CBN governor said many companies that needed some of the 41 items had folded up and that thousands of jobs had been lost.

“Yet there is a better, sound, transparent and sustainable way of achieving what you intend to achieve. To create prosperity for all and lift millions out of the job market, we need industrialisation; we need to be exporting. We must fix the infrastructure,” he added.

Soludo also said that Nigeria’s public finance was broken because the country’s total expenditure was in excess of its total revenue.

He said, “In a regime where you have the total recurrent expenditure in excess of your total revenue, there is an issue. You know people talk about recurrent expenditure being 70 per cent of the budget; they are including the debt. As a percentage of your total revenue, you recurrent expenditure is a hundred and something per cent, which means as it is today, part of our borrowing is actually to finance recurrent expenditure.” (Punchng.com)

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World Bank Blames Nigeria’s Forex Crisis On Fixed Exchange Rate

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Currency notes

Everest Amaefule, Abuja

The World Bank has blamed Nigeria’s enduring foreign exchange instability on the fixed exchange regime in the official forex market.

In a publication on African economies titled: ‘Africa’s Pulse,’ the World Bank singled out Nigeria and Angola as two countries that had yet to experience stability in the forex market despite rebound in the prices of commodities being exported.

The report stated, “The rebound in commodity prices and improved growth prospects in some countries have helped stabilise commodity exporters’ currencies.

“However, with the Nigerian naira and Angolan kwanza remaining fixed against the US dollar, the imbalance in the foreign exchange market remains substantial in both countries.”

The report also mentioned Nigeria as one of the countries in the region where there were substantial risks in the banking sector due to a number of factors, including non-performing loans and policy uncertainties.

The World Bank said, “Banking sector vulnerabilities remain elevated in the region, including in Angola, CEMAC countries, the Democratic Republic of Congo and Nigeria. Foreign exchange restrictions, policy uncertainty and weak growth have affected the soundness of the banking sector.

“Non-performing loans have increased, and profitability and capital buffers have decreased. Several proactive measures have been introduced to contain risks to financial stability, including through increased provisioning and by intensifying monitoring and supervision of banks.”

On inflation, the report stated that although inflation remained very high in the region, it had started to ease but singled out Nigeria and Angola as two countries where inflation was rising as a result of the depreciation of currencies in the parallel exchange market.

The report added, “Inflation in the region is gradually decelerating from its high level in 2016 but remains elevated. Although a process of disinflation has started in Angola and Nigeria, inflation in both countries remains high, driven by a highly depreciated parallel market rate.

“Inflation eased in metals exporters, because of greater currency stability and lower food prices due to improved weather conditions.”

The National Bureau of Statistics, however, reported that inflation in the country had continued to increase until it reached a peak in January.

According to the NBS, the inflation rate reduced from 18.72 percent in January to 17.78 percent in February. By March, it further went down to 17.26 per cent. The inflationary figure for April has yet to be released by the bureau.   (Punchng.com)

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Dollar To Fall Further As Hoarders Count Losses, CBN Plans For More Intervention

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…Naira firms at 375/$1

From Uche Usim, Abuja

Barring unforseen circumstances, the United States dollar is set to crash further this week as the Central Bank of Nigeria (CBN) plans yet another round of interventions in the interbank market.
This is as the naira has continued to do extremely well in the black market, firming at N375/$1 in most Bureaux De Changes in Abuja.
Daily Sun findings reveal that most forex hoarders who hitherto calculated that the apex bank’s interventions were not sustainable have continued to record heavy losses with the latest interventions in February.
A source at popular black market spot at Sheraton Hotels, Abuja who craved anonymity said: ‘some rich men have started bringing their dollars for us to sell because the value has been going down. Some of them claimed they bought dollars at N380. Another said he bought at N400 and so if they don’t sell now, they’ll lose seriously. So they’re bringing the dollars out because the value is dropping”, he said.
However, there were indications at the weekend that the apex bank planned to pump in more foreign exchange into the interbank space to meet the demands of genuine wholesale and retail customers as well as strengthen the value of the naira against other international currencies.
The planned move by the CBN, sources say, will further firm up the naira against other currencies as the exchange rates of the greenback and the United Kingdom Pound Sterling continue to move southwards.
Investigations revealed that the US dollar, Euro and the Pound, exchanged at the parallel market over the weekend at the rates of N375, N405 and N475, respectively, with the hope that the figures will further nosedive this week.
Speaking at the weekend, the Acting Director, Corporate Communications Department, CBN, Isaac Okorafor, confirmed the plan to inject more foreign exchange into the forex market in the weeks ahead.
According to him, the move underscores the commitment of the CBN to sustain the tempo of liquidity in the interbank market in the interest of different categories of genuine end-users.  (The Sun)

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Revise Exchange Rate Policy To Qualify For $1.4bn Loan, IMF Tells Nigeria

Simeon Ebulu with Agency Report

IMF

Nigeria’s quest to secure a $1.4billion loan from the international funding agencies may be hindered, if the country fails to buy-in to reforms being pushed by the International Monetary Fund (IMF), a report has indicated.

The IMF, Reuters said, is expected to warn Nigeria that its economy needs urgent reform, saying a failure to imbibe the measures, could delay talks over $1.4 billion in international loans. The global financial institution, is expected to warn Nigeria that its economy needs urgent reform, according to a report seen by Reuters that could delay talks over $1.4 billion in international loans.

The Washington-based fund will urge Nigeria, a major oil producer, to introduce immediate changes to its exchange rate policy, saying the nation’s recent reform plan is not enough to drag Nigeria’s economy out of recession, the report, billed for release on March, 29, said.

“Much more needs to be done,” the IMF said in the document, written after a final meeting between its representatives and top officials in Abuja before the fund issues its verdict on Nigeria’s economy next week.

“Further actions are urgently needed,” it said.

The report – from the fund’s acting secretary and addressed to members of its executive board – is set to form part of the IMF’s verdict, although Nigeria can request alterations. Three people familiar with the negotiations said it would send an important signal to institutional lenders.

The World Bank has been in talks with Nigeria for a loan of at least $1 billion for more than a year and the African Development Bank (AfDB) has $400 million on offer, but discussions have stalled over economic reforms. Nigeria is seeking the funding for infrastructure investment and to help plug an expected record deficit in this year’s budget as it boosts spending to try to end a recession.

“The tone of the IMF will be critical in terms of signaling,” said one of the people familiar with the negotiations, who spoke on condition of anonymity because they were not authorised to speak to media.

Two of the people with knowledge of the loan talks said the lenders were unlikely to withhold funding entirely.

President Muhammadu Buhari has rejected a devaluation of the Naira and backed curbs imposed by the Central Bank that force firms to buy dollars needed for imports for a premium on the black market.

Nigeria has at least five exchange rates – the official one, a rate for Muslim pilgrims travelling to Saudi Arabia, one for school fees abroad and a retail rate set by licensed exchange bureaus.                   (The Nation)

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Market Gains N29bn As CBN Reviews Forex Policy |The Republican News

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CBN Governor, Mr Godwin Emefiele

Stanley Opara

The Nigerian equities market appreciated by N29bn on Monday as the Central Bank of Nigeria released a new foreign exchange policy in the country with immediate effect.

The Nigerian Stock Exchange market capitalisation rose to N8.738tn from N8.709tn, while the NSE All-Share Index closed at 25,249.49 basis points from 25,164.91 basis points.

The new policy is the outcome of the last Thursday’s directive by the National Economic Council for immediate review to stem the widening gap between the inter-bank foreign exchange and parallel market rates.

The CBN said in order to ease the difficulties encountered by Nigerians in obtaining funds for foreign exchange transactions, it would henceforth be providing direct additional funding to banks to meet the needs of Nigerians for personal and business travel, medical needs, and school fees, with immediate effect.

The equities market started the week on a positive note, advancing by 0.34 percent, to settle the year-to-date return at -6.05 per cent. There were  10 gainers and 18 losers.

A total of 110.016 million shares worth N985.667m were traded in 2,160 deals.

PZ was the top gainer for the second consecutive trading day, advancing by 9.04 percent, to close at a year high of N14.60.

Diamond Bank Plc, Nascon Allied Industries Plc, Nigerian Breweries Plc and Caverton Offshore Support Group Plc also appeared on the top gainers’ list appreciating by 4.88 per cent, 4.55 per cent, 4.18 per cent and 3.33 per cent, respectively.

Meanwhile, Forte Oil Plc declined the most in share price by 5.02 percent to close at N53.87. UACN Plc, Nigerian Aviation Handling Company Plc, Honeywell Flour Mill Plc and Neimeth International Pharmaceuticals Plc also appeared on the top losers’ table dropping by  4.95 per cent, 4.67 per cent, 4.55 per cent and 4.35 per cent, accordingly.

The NSE food and beverage index was the only index to close positive, with the oil/gas, banking and insurance indices declining by 0.63 per cent, 0.20 per cent and 0.11 per cent, respectively, while the industrial index traded flat.

Responding to the state of the market, analysts at Meristem Securities said, “The much-expected upturn witnessed in the market today can be attributed to bullish activities on certain large-cap tickers, as well as intensified position-taking ahead of the 2016 financial year earnings releases and corporate actions.

“As we expect this to continue for most of the week, we advise value-seeking investors to temper their optimism with caution.”

Meanwhile, there was a decline in system liquidity, resulting in a 2.57 percent increase in the average money market rate to 20.82 percent, at the close of the trading session. The open buy-back and overnight rates rose by 2.67 per cent and 2.47 per cent, respectively, to settle at 20.50 per cent and 21.14 per cent, accordingly.

Activities in the Treasury bills space were characterised by bearish sentiments on February 17, 2017.

The one-month, three-month and six-month instruments recorded yield increases of 0.15 per cent, 0.02 per cent and 0.32 per cent, respectively. The average Treasury bills yield stood at 16.24 per cent (+0.16 per cent), at the close of Monday’s trades.

Similarly, in the treasury bonds space, yields advanced across most instruments, save for the March-2036, May-2018 and June-2019, which recorded declines of 0.04 per cent, 0.18 per cent and 0.03 per cent, accordingly. Consequently, the average bond yield increased by 0.12 per cent, to peg at 16.65 per cent at the close of trades.

The naira continued its downward trend at the parallel forex market, as it depreciated by 0.77 percent, to settle at N520/dollar. However, the currency appreciated by 0.08 per cent at the interbank forex market, to close at N305.25/dollar.  (Punchng.com)

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