CBN will spend $8 billion defending naira this year, Rewane projects

Wuhu2周前Sports90
The Managing Director of Financial Derivatives Company Ltd and economist, Bismarck Rewane, yesterday, painted a mixed picture of the economy, projecting the Central Bank of Nigeria ... CBN will spend  billion defending naira this year, Rewane projects‘Absence of rate-determining mechanism major challenge of FX market’The Managing Director of Financial Derivatives Company Ltd and economist, Bismarck Rewane, yesterday, painted a mixed picture of the economy, projecting the Central Bank of Nigeria (CBN) will spend between $8 and $10 billion to defend the naira this year. This, he said, would drag the country’s gross external reserves to between $30 and $32 billion this year.

The gross reserves, which resumed after dipping towards the end of last year, closed at $40.5 billion on January 11. Nigeria’s share from last year’s International Monetary Fund (IMF) special drawing rights (SDR) and proceeds of the Eurobond, had shored up the reserves, halting an era of tumbling that started in 2020.

Rewane, who spoke at the Nigerian-British Chamber of Commerce (NBCC) 2022 Economic Outlook, said the Central Bank of Nigeria (CBN) would not spend less than $8 to $10 billion to support the naira, which has faced fresh pressure at the Investors’ and Exporters’ (I & E) window.

The economist said the foreign exchange (FX) market could face pressure in the short term with capital outflow expected to heighten. He, however, saw the effective exchange rate gaining as the differential between the official and parallel market rates narrows.

He added that the absence of “a rate-determining mechanism is a major challenge” the market has faced, while expecting rate convergence to continue into the year.

According to him, the CBN’s policy direction will be influenced by global developments just as the Bank would continue with the “adoption of its crawling peg strategy in a shift towards greater exchange rate flexibility”.

He projected that investment activity will suffer amid project delays, low real rates of return and policy uncertainty as travel restrictions, capital controls and supply chain disruptions continue to limit business activity in the near term.

“Foreign exchange earnings and fiscal revenues will be slow to recover in line with oil price movements and the hydrocarbons production outlook. Limited fiscal space, slow reform momentum and political risks will preclude rapid improvement in the business environment,” he said.

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