Despite the increase in crude oil price: the foreign reserve declined by $516.63million from $40.21 million between the last MPC meetings to $39.70 billion as of March 17 2022.
Despite the increasing crude oil prices, the decrease in the foreign reserve follows the FX market intervention by the apex bank, in a bid to ensure the stability of the Naira by selling FX in the official market at a conservative rate to manage the volatility in the currency.
Naira Persistent Decline in the FX Market: Within the last MPC meeting and last Friday, the Naira depreciated marginally by ₦0.86 against the dollar from ₦415.64/$ to ₦416.5/$ at the Importer & Exporter (I&E) window, while it (Naira) depreciated by ₦13 from ₦571/$ to ₦584/$.
It is important to note that the MPC in their last announced the introduction of e-valuator and e-invoice for import and export in Nigeria to eliminate over-invoicing and mispricing of goods and services.
Also, the CBN in the period under review introduced the RT200 Non-Oil Export Proceeds Repatriation Rebate Scheme to reduce exposure to volatile sources of foreign exchange and earn more stable and sustainable inflows of FX.
With this, the CBN aims to raise $200Billion in FX from non-oil proceeds over the next 3-5years by incentivizing exporters in the Non- Oil export sector to encourage repatriation and sale of export proceeds into the FX Market.
Our position
From the above analysis, given the limited option available to the CBN to Reduce, Retain or Increase, we believe that more members of the committee will likely vote to retain the MPR as a reduction in the MPR is not an option for the MPC following the rising rate of the inflation rate.
However, in light of the recent tightening of monetary policy rates by global central banks and the direct impact of the Russia/Ukraine crisis, we expect the MPC to retain the MPR but improve the CBN intervention in the power and agricultural sectors to reduce the cost of doing business.
