…..Says it could increase items on forex restriction list to 50
The Central Bank of Nigeria (CBN) said over the weekend that it will likely spend as much as $53 billion in the foreign exchange market to provide forex liquidity to defend the naira and keep the local currency stable.
It will be recalled that the bank has spent $420 million and $210 million respectively in its two interventions this month, and will now spend as much as $500 million monthly, if this plan was to sail through.
The new plan is coming after foreign investors withdrew as much as N435.41bn from stock market ahead of the upcoming 2019 election beginning next month, according to the Nigerian Stock Exchange (NSE) data.
This plan, analysts say could lead to monthly average reserve drawdown of $431 million adding up to $5.2 billion over 2019 will exert pressure on the foreign reserve forcing it to close 2019 at $38.5 billion or $41.2 billion if adjusted for the proposed $2.7 billion Eurobond, according to The Nigerian Tribune, citing analysts at ARM Research Limited.
“With our model suggesting cumulative slower CBN intervention over 2019 to the tune of $53 billion (3 percent lower year-on-year), we estimate average monthly sale of $4.5 billion (as against $4.7 billion in 2018).
“While this suggest a comfortable position for the apex bank and the naira, we believe the distorted interplay of demand and supply at the IEW and the increased demand at same would drive short term volatility in rates and an eventual adjustment to our fundamental driven purchasing power parity (PPP) estimate of between N397.61/$ to N401.50/$ (8-10% down-leg from current NAFEX rate of N362.00/$ at the end of December 2018),” Nigerian Tribune reported the ARM researchers as saying.
In another development, the bank said it may increase restrictions on imported items from 42 to 50 in the coming days as the country tries to “stimulate the export market”, according to Godwin Emefiele, the CBN governor.
The bank, he said, will “get more aggressive in ensuring that more items being imported into the country were added to the forex restriction list.”