Naira Remains Stable as Lemo Calls for Patience


Obinna Chima
The naira exchange rate remained almost unchanged on the interbank market on Tuesday where it closed at N316.83 to a dollar, compared to N316.37 to a dollar at the close of business on Monday.

On the parallel market, however, the naira tumbled again by N1.00 to close at N382 to a dollar yesterday.

THISDAY had exclusively reported yesterday that recent measures taken by the Central Bank of Nigeria (CBN) were gradually yielding results, as evidenced by the improvement in liquidity on the interbank spot FX market, which recorded a turnover of $196.14 million and an average daily volume of $39.23 million last week.

The improvement in market liquidity in recent days was confirmed by a former deputy governor of the CBN, Mr. Tunde Lemo, who also advised Nigerians to be patient with the new foreign exchange rate regime.

Lemo, who spoke to THISDAY in Lagos yesterday, backed the central bank for introducing the flexible exchange rate regime.

“I have said it time and again that Nigerians are a bit impatient. If we started this market six weeks ago, it is too early to start to say foreign investors have not started coming. They would take their time.

“When they take their time and they realise that the market is up and running and is organised, they would come.

“When you do a trend analysis, you will find out that the foreign exchange flow that you have been seeing in the last two weeks is higher than what happened at the outset six weeks ago.

“When the market started, the trade arrears of about $4 billion were cleared by the CBN. But today, I can tell you that in the last two weeks, the CBN has not been the major supplier of foreign exchange. It is now coming from independent sources.

“So you are beginning to see the market settle, and before long, the naira would find a new equilibrium and then we will begin to see the sanity that we expect. But it would take some time.
“Good a thing the government is addressing the issue of security. Now, there are discussions going on with the militants and they are working very hard to fix infrastructure.

“So the good news coming out of Nigeria now, should encourage foreign investors to return to Nigeria any time soon,” Lemo, who is currently the Chairman of Lambeth Trust & Investment Company Limited, said.
He stressed that confidence was a vital factor that is needed to lure foreign investors to Nigeria.

According to him, now that the country operates a flexible forex market, investors are watching.

“Every time there is a news flash about Nigeria – kidnapping, Niger Delta Avengers, and all of those things – they are doing their risk analysis. All of these wash into our confidence index. That is what then determines when the foreign investors would come,” he added.

Responding to a question on what should be the trade-off in an economy that is on the brink of recession and also battling galloping inflation, the former policy maker said: “We are in a dilemma. There is no policy maker that wants to be in this kind of dilemma in the sense that on one hand, you are in recession officially and at the same time, you have high inflation.

“In most other climes, inflation is very low when you are in recession and with that it is very easy to deal with.

“This is because the simple thing to do, as textbook economics tells you is to spend your way out of recession. You increase spending so that you can stimulate consumer demand by pushing out a lot of money. But if you do that in a high inflation environment, then you have a problem.

“Ordinarily, when a policy maker has that kind of dilemma, in my view, my priority should actually be to drive growth. In other words, let high inflation be for the time being and try to stimulate the economy.

“When you have done that, you can now come back and deal with inflation. However, our own economy is peculiar in the sense that if you do that in Nigeria, the structure of the Nigerian economy is such that the key elements driving inflation are things you could pick up on your fingertips.”
Nigeria’s inflation rose to 16.5 per cent in June. But Lemo explained that inflation in Nigeria today was imported inflation pass-through.