The Central Bank of Nigeria (CBN) has said it will be giving incentives to importers who bring in invoices in Chinese Renminbi instead of in dollars as a direct reaction to the recent rate hike by the United States Federal Reserve Bank.
CBN disclosed this this week at a briefing at the end of the Bankers Committee meeting which comprised of chief executives of banks and regulators in Lagos.
The US Federal Reserve hiked its benchmark short-term interest rate a quarter percentage point on Wednesday and indicated that two more increases were likely this year.
The move pushes the funds rate target from 1.75 per cent to two per cent and has the potential to reroute Foreign Direct Investment (FDI) from emerging markets to the US and could spark a pressure on foreign reserve.
Assuring that it had a strong capacity to defend the naira ahead of expected outflow of foreign exchange on the back of the rate hike, CBN Director, Banking Supervision, Mr. Ahmad Abdullahi, noted that the external reserve of the country had grown to $48bn.
Abdullahi said the decision jointly made by the CBN and the Bankers Committee was to encourage importers to receive invoices in renminbi instead of dollars.
“One of the incentives will be that a percentage spread which is yet to be determined will be given to any importer that is bringing renminbi invoice for settlement instead of bringing dollar invoice so that when you look at the overall cost in terms of naira, if you bring renminbi invoice, it is going to be cheaper for the importer.”
The Chief Executive of Stanbic IBTC, Dr. Demola Sogunle, said encouraging importers to pay for machinery, equipment and goods in renminbi would further strengthen the foreign exchange reserve of the country.
According to Sogunle, importers who brought invoices in renminbi would be getting a percentage spread on their payments.
The Managing Director and Chief Executive of Keystone Bank, Obeahon Ohiwerei, explained that the percentage spread being given would be aside the reduction cost in mark up prices when invoices were issued in dollars.
According to him, “Anytime invoices are obtained in dollars for an import from China, there is usually a 10 per cent mark up; so that 10 per cent, is a plus for the importer.”
The CBN had signed a currency swap agreement with China which gives the country access to RMB15bn. This means importers who get invoices in renminbi will pay less naira than their counterparts that import from China and get invoices issued in dollars.
Meanwhile, the CBN said despite the mixed signals in the economy, it remained confident of being able to continue to defend the naira. The CBN Banking Supervision Director noted that despite the rise in Fed’s rates, global trade war and a cut in tax by the United States Government and its attendant effect might include outflow of capital form the Nigerian economy and that “the CBN is prepared for any outflow.”
This assurance was also given by the Managing Director of United Bank for Africa (UBA), Kennedy Uzoka. He stated that the external reserve of the country was high “regardless of the messages that we are getting from abroad that things are getting in the reverse, but Nigeria, with the good work of the CBN, has been able to manage it and we are now in a good position to manage the Forex market development.