GTB reveals how CBN’s forex policy will defend Naira

The recent move by the Central Bank of Nigeria (CBN) to address inadequate foreign exchange (FX) in the economy through the targeted non-oil export revenue of $200 billion will buoy the apex bank’s capacity to defend the Naira.

This was the position of investment analysts at Guaranty Trust Holding Company Plc (GTCo) in a report titled: “Nigeria Macro-economic Outlook for 2022”.

Besides the new policy thrust of the apex bank, they said that diaspora remittance inflow, also expected to support the apex bank’s ability to defend the Naira, would increase on the continuation of the Naira-4-Dollar initiative.

Recall that the CBN recently introduced two policies to improve FX liquidity in the market – non-oil FX rebate scheme and RT200 FX programme. While the former is a special local currency rebate scheme for non-oil exporters who sell export proceeds into the I&E window, the latter will entail the establishment of a dedicated non-oil export terminal anchored on reaching a goal of US$200 billion in non-oil exports.

They said: “We applaud the CBN’s drive to significantly improve FX liquidity in the market to reduce dependency on oil revenue and foreign portfolio investments. We expect that the CBN’s capacity to defend the naira will be buoyed by strong oil prices, healthy reserves, diaspora remittances, and the newly introduced non-oil export schemes.”

Continuing, they said: “The CBN adopted the NAFEX rate as the official rate in Q2 2021 and eventually devalued the naira to N435/US$1 on the last business day of the year, representing a 6.12% y-o-y depreciation of the naira at the I&E window in 2021. Notably, 2021 witnessed the continued widening of the gap between the official and parallel market rates. While we expect Foreign Portfolio Investors (FPI) inflows to remain low as rates in developing economies normalise and the real return on government securities remain negative, remittance inflow is likely to improve on the back of improved economic activities in emigrants host countries and the continuation of the CBN’s Naira 4 Dollar initiative.

“We also expect the CBN to continue to defend the naira with more frequent interventions in the I&E window. Overall, the regulatory authorities will maintain its hold on the market as it continues to monitor activities in the market and will be quick to implement policies to mitigate the developments that might negatively affect its plan for a stable naira.”