CBN vows to sustain intervention in forex market

Nigeria's Central Bank Governor, Godwin Emefiele, recently met with the Senate to defend the bank's foreign exchange (FX) policies. Emefiele assured the Senate that the bank has adequate reserves to sustain interventions in the forex market. The discussion comes amidst concerns about the sustainability of the ongoing FX reforms in Nigeria. Emmanuel Odiaka, a fixed income and currency analyst, shared insights on the FX and fixed income markets in a recent interview with CNBC Africa. Odiaka acknowledged the growing appetite for stability in the system and expressed optimism that the CBN would continue to intervene to maintain price stability. He noted that the recent MPC meeting mandated the CBN to sustain liquidity in the system, leading to various reforms. However, Odiaka raised concerns about the sustainability of these reforms in the event of a sharp drop in crude oil prices. The analyst highlighted the CBN's efforts to buy time through its measures and sustain market liquidity. Despite the positive impact on the parallel market exchange rate, Odiaka questioned the source of liquidity in the new export-import investors' window. He emphasized the need for foreign portfolio investors to observe market sustainability and price discovery before entering the market. Regarding the fixed income market, Odiaka discussed the liquidity squeeze driven by the CBN's daily market operations. The high interbank lending rates have limited banks' investments in fixed income instruments like bonds and treasury bills. Odiaka predicted that yields would remain high due to banks diverting funds to purchase foreign exchange. When asked about Nigeria's recession outlook, Odiaka shared a cautious optimism about the economy's recovery. He emphasized the need for sustained growth to match the country's population increase. Odiaka raised concerns about the lack of focus on population issues in development discussions and urged a comprehensive approach to address economic and demographic challenges. In conclusion, Odiaka's insights shed light on the complexities of Nigeria's FX and fixed income markets. While the CBN's interventions aim to stabilize the forex market, questions remain about the long-term sustainability of these measures. As Nigeria navigates economic uncertainties, addressing population dynamics and ensuring inclusive growth will be critical for lasting development.