We prefer stable exchange rate now to building reserves — CBN replies IMF

By Emeka Anaeto & Babajide Komolafe

Yesterday, the Central Bank of Nigeria, CBN, responded to the International Monetary Fund, the IMF, proposing a reasonable use of the country's external reserves to create buffers against the shock of rising interest rates in the mode of normalizing monetary policy in the United States, stating that the CBN policy preference is now in maintaining exchange rate stability.

CBN Governor, Mr. Godwin Emfilel, spoke about this during a joint briefing by the Nigerian delegation at the World Bank / IMF meeting in 2018, held yesterday in Bali, Indonesia.

He also pointed out that apex Bank of Nigeria showed itself relatively better than most emerging markets and third world central banks in the area of ​​stability and exchange rate reserves in connection with the normalization of US policy.

As in other emerging market countries, Nigeria’s external reserves shrank by $ 4.2 billion. The US since July 5, 2018 due to an increase in sales in CBN dollars to prevent nira depreciation due to increased demand for dollars from foreign portfolio investors entering the national financial markets in response to an increase in interest rates in the United States and other developed countries economy.

Several sessions of the meetings discussed the need for some preventive measures, especially for the creation of reserves by third world countries.

The head of the IMF, the Division of Regional Studies of Developing Economies, the European Department, Anna Ilyina, last Wednesday during the session of the just-concluded Annual Meetings of the International Monetary Bank / World Bank in Indonesia, commissioned emerging economies, including Nigeria, to build their external reserves. against the policy of normalization, which, according to her, can be drawn out.

Answering question documentation in Bali, Indonesia, in a position that a top bank would face in the face of this problem, Emefile stated: “We are trying to ensure that we maintain a stable exchange rate and avoid the devaluation trap of our currency so quickly in the early days of normalization.

“We are going to create buffers, but, unfortunately, I have to say that we are in a period when it is difficult to talk about creating a reserve.

“You can create backup buffers only if you want to save a reserve, letting your currency go, and wherever it goes, there may be something else.

“This is a choice we have to make, and now the choice for Nigeria is to maintain a stable exchange rate so that companies can plan, and we do not create problems in the assets of the banking system.

“Naturally, when this happens, it leads to a weakening of assets, an increase in non-performing loans and other broad consequences. That is why we will maintain our position, and we believe that it will be sustainable in the short term. ”

He said: “Indeed, due to the normalization of monetary policy, some concerns were expressed that the adverse effects of the policy would eventually spread to Europe and could create more problems for emerging market economies.

“For emerging market economies, it was noted that the adverse effects of normalizing US policies led to unfolding capital flows, especially for emerging markets, which led to some currency depreciation in these countries.

“In general, recommendations were given that countries should continue to create buffers and that different countries should pursue country-specific policies to protect against these shocks, which are expected to take some time and its consequences.

“At that time, we began to see a turnaround in monetary policy when interest rates rise and, naturally, those flows (capital) begin to return back to where they came from. Almost all emerging markets have suffered, not only from wear and tear, but also lost reserves.

“For Nigeria, we lost only reserves in my opinion, and at the same time we managed to maintain stability in our foreign exchange market.

“I think that we have done a very good job, not only trying to maintain a stable exchange rate, but also trying to avoid the depreciation of our currency so far in these early days of normalization.

“We lost a reserve, yes, somewhat insignificantly, in my opinion, and at the same time we managed to maintain stability in our foreign exchange market.”

More national assets will be privatized – Emefiele

Godwin Emfile, Governor of the Central Bank of Nigeria (CBN), says more state-owned enterprises will be privatized.

The governor made it known to reporters at a press conference to mark the end of the annual meetings of the International Monetary Fund (IMF) and the World Bank in Bali, Indonesia.

Udoma Udo Udoma, Minister for Budget and National Planning, Minister of Finance Zainab Ahmed and Acting Director General of the Securities and Exchange Commission (SEC), Mary Uduk, also gave feedback from various meetings that they attended.

Naira to N359.5 / $ in the parallel market

“As you all know, CBN is the majority shareholder in the mint, and it was believed that he is the majority shareholder, and given that the mint is an important national treasure, the State Enterprises Bureau should abandon the mint, and that’s why it happened” Said Emifel on Sunday.

“On this question of whether this will come more and more, I know as a member of the national privatization council, what is coming up more and I am sure that in due time BPE will make it available to us.

“I also know that ASCON is also in the cart for a complete overview of the privatization process so that our aluminum sector can eventually live.”

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