Forex: CBN to Spend Less Foreign Reserves, Says Sanusi

By Emele Onu with agency report, 10.13.2010 

The Central Banking of Nigeria (CBN) has taken a position to slow down spending of the country’s external reserves for the purpose of defending the naira.Reuters News quoted the CBN Governor Sanusi Lamido Sanusi yesterday as  having told Reuters Insider television in Washington about the reserves and the defence of the naira that, “I think we are going to see less spending but I think the naira will remain stable.”


The naira weakened last Monday at the official markets, a development traders attributed to the desire of dealers to hedge against anticipated future depreciation of the local currency. THISDAY gathered that the naira dropped owing to excess dollar demand by dealers who feared that the CBN might reduce its funding of the market and thus trigger a crash of the local currency.


Perhaps allaying the fears of market players, Sanusi told  Reuters Insider television that “We do think that the elevation in (dollar) demand is temporary and it is tied to some cyclical events, largely increased imports of petroleum products as a  result of enhanced credits from the Federal Government and also an increase in importation of rice as a result of waivers given to rice importers.“We also had seen a slowdown originally in receipts from the oil companies and  NNPC as a result of some break in lifting, so we have had to fill that gap.


“We think from next week, the NNPC will see more of their receipts come in and we are going to see increased autonomous inflows and less pressure at WDAS (bi-weekly forex auctions).”At the inter-bank market last Monday naira exchanged 152.26 to the dollar, after it declined by 87 kobo against 151.39 to one dollar last Friday. At the CBN regulated wholesale Dutch auction system, (WDAS) last Monday naira depreciated by N1.12 as N149.97 exchanged for one dollar against N148.85/$1 at the previous auction last Wednesday.


It was gathered that the banking watchdog sold $360 million to the dealer banks, which was short of the $424 million that was demanded, but above its initial offer of $250 million. It had sold a higher $439 million at its previous auction last Wednesday.The naira, which had suffered some battering recently started appreciating after the monetary authority stepped up forex supply by spending more of the country’s reserves.


Nigeria’s external reserves stood at $34.73 billion yesterday, a marginal increase from $34.57 billion it was as at October 5, which represented then a fall by 15 per cent, compared to $40.75 billion it was at the same period last year. According to CBN, the reserves had been declining, dropping by 7 per cent from the middle of last month to the end of the month.Nigeria’s external reserves deplete as the CBN continuously deploys it to fund bloated importation bill.


But improved prices of crude oil at the international market to over $80 a barrel, means that Nigeria can accumulate enhanced reserves, especially if the CBN does less of naira defence spending.Sanusi further said: “The preservation of reserves is also dependent on a number of complementary government policies.“A lot depends on government spending as well. Remember that we’ve got oil price, we’ve got output, and the reserves also have a tax element.


“There’s been a lot of spending to repair blown up wells throughout the Niger Delta. There’s still lots of money going into joint venture cash calls. The NNPC is still taking a significant amount to pay the subsidy on petroleum products.“The Petroleum Industry Bill, which is going through National Assembly, should give us some more visibility on the cash calls and reduce that source of pressure.”


On efforts to stimulate bank lending, he said: “I’ve said over and over again we can deal with the supply situation by repairing bank balance sheets and that’s what we’ve done with the asset management corporation, that’s what we continue doing. “We’ll purchase non-performing loans, we’ll recapitalise the banks, we’ll push through with the discussions with strategic partners for M&A processes. And that should be concluded within this quarter.”


On the outlook of interest rate and inflation, the governor said: “It depends on where we see inflation going. We generally do not want to stifle growth. We generally would like to see moderate lending rates in particular but we’re not going to fold our arms if inflation continues going the way it was going.


“I think part of what we’ve got to do is make sure that there’s no easy money for financing deficits.So the government should pay a higher rate of interest for borrowing if it’s going to continue with the deficit spending.”



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