CBN unveils flexible exchange rate

 says reserve still robust

By Abimbola Fashakin, Lagos

The Governor of the Central Bank of Nigeria (CBN), Dr. Godwin Emefiele has reeled the detailed components of the flexible foreign exchange regime.

This is coming just as the bank has maintained that in spite of the dwindling fortune of the country’s reserve, it is still very robust and capable of withstanding the vagaries of the economic meltdown.

Emefiele made this assertion while unveiling of the Framework for Re-introduction of Managed Float Exchange Rate System, saying the initiative forms parts of the outcome of the Monetary Policy Meeting.

Unveiling the features of the new regime, the CBN governor said the bank may offer long-tenored FX Forwards of 6 to 12 months or any tenor to Authorized Dealers; Sale of FX Forwards by Authorized Dealers to end-users must be trade-backed, with no predetermined spreads.

Other features include, the introduction of a non-deliverable over the-counter

(OTC) Naira-settled Futures, with daily rates on the CBN- approved FMDQ Trading and Reporting System.

“This is an entirely new product in the Nigerian Foreign Exchange Market, which would help moderate volatility in the exchange rate by moving non-urgent FX demand from the Spot to the Futures market.” He said.

He further added that “The OTC FX Futures shall be in non-standardized amounts and different fixed tenors, which may be sold on any dates thereby ensuring bespoke maturity dates.”

He said the proceeds of foreign investment inflows and international money transfers will be purchased by dealers at the Daily Inter-Bank rate; and that non-oil exporters are now allowed unfettered access to their FX proceeds, which shall be sold in the Inter-bank market.

To underscore the resolve of the bank, Emefiele stated that Selected FX Primary Dealers would be notified by Friday 17th June 2016 and that all other non-Primary Dealers would remain valid and eligible to participate in the market.

According to him, “Inter-bank trading under the new guidelines will begin onMonday 20th June 2016; and the tenors and rates for the OTC Naira-settled FX Futures will be announced on Monday 27th June 2016.”

Appraising the nation’s economy, he stated that it has absolved three shocks in the last two years occasioned by over 70 per cent drop in crude oil export earnings.

He also listed slowdown in global economy as well as normalisation of the monetary policy of the United States of America.

According to him, the CBN has had to manage a significant decline in our Foreign Exchange Reserves from about US$42.8 billion in January 2014 to about US$26.7 billion as of 10th June 2016.

He added that the Bank’s foreign exchange earnings have fallen from about US$3.2 billion monthly to below a billion dollars per month and that the demand for foreign exchange has risen significantly.

He said by 2005 when oil prices was at US$50 per barrel the average import bill was N148.3 billion per month and by ten years later it has increased to N917.6 billion per month.

Unfortunately, the interplay between reduced FX Supply and rising FX demand accounted for a substantial reduction in our foreign exchange reserves.

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