Nigerian central bank faces short-term debt hazards

Significance

Emefiele has vowed that the CBN will significantly increase financial inclusion, recapitalise banks and help the economy achieve double-digit growth over his second term. However, the significant amount of CBN bills in circulation, a key but costly component of the Bank’s recent exchange rate strategy, poses serious medium-term risks.

Impacts

• The CBN's continued focus on exchange rate stability leaves limited space for reducing interest rates over the short term.
• Effective foreign currency yields of over 10% are appealing for portfolio investors, but a sudden naira slide would prompt major losses.
• Significant divestment by foreign portfolio investors may make the CBN resort to temporary capital controls to limit damage to the naira.