Emefiele expects naira to appreciate in 2018
Nigeria’s central bank governor, Godwin Emefiele, says he expects the naira to appreciate into 2018 as oil prices trend higher and production levels remain high.
At the Investor and Exporters (I&E) FX window, the naira exchanges at N360 per dollar, and on the parallel market at around N363 per dollar, mirroring rates for investors.
“The market will determine the direction of the naira, but prognosis that it will strengthen is very correct,” Emefiele said at the London Stock Exchange (LSE) over the weekend, during the Nigeria capital market and banking conference.
“$60 per barrel for oil is good, which is above the budget benchmark of $45. We are happy that production is stable and aggressively building reserves. It can only continue to get better,” Emefiele said.
Nigeria’s dollar reserves fell some 38 percent to $23 billion in October 2016 from $37 billion in early 2014 when the CBN governor resumed duties, as oil prices collapsed.
Reserves hit $33.6 billion on October 25, 2017, a more than two-year high, according to data from the CBN. The drop in oil prices caused major pains for Africa’s largest economy, leading to a very difficult period that has now come to an end, according to Emefiele.
“Nigeria has re-opened for business. If you consider what we faced in the last 2 years and the serious haemorrhaging in that unfolded in the country,” he said.
Brent crude, which had averaged about $110 per barrel in 2013, fell below $30 per barrel in January 2016, the first time in 12 years.
“We wasted the good times of plenty petrodollars. But when the hardship came we decided to reform our domestic economy to be able to emerge stronger,” he said.
The CBN provided support to 200,000 farmers under its anchor borrowers programme between 2015 and 2016. As a result, yields on rice produced in Nigeria have jumped more than four folds to between 5 and 8 metric tons per hectare from about 1 – 1.5 metric tons per hectare, he said.
Reforms in the country’s foreign exchange (FX) market by the CBN that led to the opening of a special FX window for investors that today trades an average of $300 million daily, have led to a huge boost in confidence, according to JPMorgan.
“The problem of FX convertibility risk has largely been solved. The external backdrop is favourable as funds move further into the frontier in search of yields,” a JPMorgan analyst said at the event.
Investors have been piling into Nigerian bonds due to high yields and stable currency for investors, especially as an improving inflation outlook may mean that yields could start to decline.
The Debt Management Office (DMO) of Nigeria sold a five- and 10-year debt at a flat rate of 15 percent in an October 25 auction and raised a total of N121.13 billion, more than the N100 billion it wanted to raise.
Inflation eased to 15.98 percent in September from 16.01 percent in August, the National Bureau of Statistics said this month.
Money manager, BlackRock, moved into Nigeria’s local currency bonds as part of efforts to raise performance in its bond offerings, the firm’s head of emerging markets fixed income said in early October.
Nigeria’s planned $5.5 billion borrowing in dollar bonds is eagerly being anticipated by the markets, according to JPMorgan.
The proposed borrowing comprises of two components: $2.5 billion new borrowing and $3 billion for refinancing, according to Patience Oniha, director general, DMO.
Nigeria’s domestic debt stock as of June 30, 2017, included about N3.7 trillion of Nigerian Treasury Bills (NTBs) with tenors of less than one year, and atinterest cost of about 17 percent per annum.
The short-term nature of the NTB stock and the high interest rate expose the public debt to refinancing risk and high debt service costs, Oniha said.
By converting them to external debt, the tenor will be extended to at least five years while the interest cost will drop to about 7 percent per annum, with the estimated savings in debt service put at about N90 billion per annum.
“The external reserves are now growing, exchange rate stable and the recession over. The Economic Recovery and Growth Plan has been launched and being implemented. That is why there is so much optimism about Nigeria that things have changed for the better,” Oniha, the DG of DMO, said in London.
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