DESPITE US RATE HIKE, CBN SAYS NO CAUSE FOR ALARM

Regardless of the United States Federal Reserves recent hike of its benchmark short-term interest rate by a quarter percentage point as well as its signaling of two more increases this year, the Central Bank of Nigeria (CBN) has said there is no cause for alarm. The Deputy Governor (Economic Policy Directorate), CBN, Dr. Joseph Nnanna, who said this in a chat with THISDAY yesterday, however, stressed the importance of capital inflows into the Nigerian economy. Nnanna noted that the yield on Nigerias treasury bills was still attractive, irrespective of the US normalization. The Fed about a fortnight ago, had pushed interest rate to a range of 1.75 per cent to two per cent and this had heightened concerns of capital outflows from Nigeria.

According to Nnanna, with external reserves at about $49 billion, the CBN is in a comfortable position to meet all its obligations. The good thing about this is that the CBN is prepared to meet every foreign portfolio investors (FPIs) at their exit. When they want to go, and they say they want their money, we would write their cheque and give to them, unlike in the past. In 2016, we were caught with our pants down. So, now, we are prepared for them. We have a war chest of close to $49 billion in external reserves, he said, Nnanna, put the total volume of transactions on the Investors and Exporters (I & E) window at about $25 billion.

Nevertheless, he pointed out that emerging markets are currently experiencing capital reversal. From Argentina to Malaysia, South Africa, Ghana, Egypt, and Nigeria is not excluded. But the reversal in Nigeria is not much. So, the point here is that if the share of FPIs in the system is less than one quarter of that, why do we have to worry? The point of the matter is that the exchange rate has remained stable and that makes the yield curve to be still attractive, no matter what the US does with its normalization. But for sure, the US normalization is a very big threat to emerging markets and there is no question about that, he added.

(ThisDay)