CBN to wield big stick as dollar rain drowns inflation, exchange rate - Financial Daily News Site

CBN to wield big stick as dollar rain drowns inflation, exchange rate

236b00f5 cbn

As Nigeria goes into another election year; the Central Bank of Nigeria (CBN) has taken up more than before to its responsibility. The reckless use of dollars by aspirants to sway delegates and the rising inflation are some of the problems the apex bank will battle with.

For Bismarck Rewane, Chief Operating Officer (COO) of Financial Derivatives Company (FDC), the night of the long knives is finally here.

“As Nigeria goes into election season, the long knives are out and the cloak and dagger business has gone into overdrive”, said Rewane said at the recent Lagos Business School (LBS) breakfast meeting.

He is worried that, the time lag between post-convention and election is long.

“This time around the lag between post-convention politics and election is dangerously long.  The average cycle since 1999 was approximately 90 days.  This time around it is likely to be 250 days. 

“The time lag is long enough for meaningful debates, dredging up scandals, fake news and misinformation. As they say “All is fair in war & love””, he said.

The first sign that the central bank is ready to mediate was when after over six years, it raised benchmark rate by 150 basis points.

The next most important task, according to analysts is venturing into the foreign exchange market to wield the big stick.

“Ordinarily, spending of dollars in a sovereign country should be a crime, but it was not only spent, it was wantonly so. The immediate effect is falling of the naira against the United State of America dollar, particularly in the parallel market”, said Marcel Obi, an economist in Lagos.

The concern is that, with a time lag that is so long, more of these illicit politicking may continue to weigh heavily on inflation and exchange rate.

But Wale Ibukun, a former banker told Blueprint that, when the delegates start going to sell the dollar for naira, there is a great possibility of the dollar also falling, lifting up the naira.

Rewane believes that, on the other hand there will be multiple debates and interrogation of economic and ideological issues before the Nigerian public, taking advantage of the long time lag.

He said, for investors, no matter what the election outcome the policy trajectory will change fundamentally. 

 The Nigerian economic philosophy of an investment led strategy as its path to economic takeoff will be reinforced.  The protectionist policies of the last decade are likely to be discarded.  They will be replaced with a more proactive package of economic policies.

Rewane recalled that the CBN finally turned the corner and embraced a more orthodox monetary policy.  It increased rates (150 basis points) after 70 months and may be considered no longer an economic maverick. 

“Investors are feeling more comfortable with the apex bank using its open market operations mainly for liquidity management.  In the forex market, we expect slight convergence if only the CBN allows the I&E rate to depreciate over a period in the adoption of a crawling peg on the path towards fair value. Whilst simultaneously increasing supply to the market.

“All told, inflation is likely to bite harder in the next few months before subsiding. Businesses should brace themselves for a period of uncertainty and imponderables”, said Rewane.

Tags: #CBN #wield #big #stick #dollar #rain #drowns #inflation #exchange #rate

Leave a Comment