- Foreign exchange reserve down to $28 billion
- Why CBN introduced Stamp Duties on bank accounts
The Central Bank of Nigeria on Tuesday shrugged off mounting pressure to devalue the country’s currency naira while leaving the its benchmark interest unchanged as it seeks to find balance to a trouble economy hit by plummeting oil prices.
The regulator rather said it would soon fine tune the exchange rate of the currency even as the nation’s currency depreciated further to N305 against the dollar in the parallel market.
CBN Governor, Mr. Godwin Emefiele, while addressing journalists in Abuja after the monthly Monetraty Policy Committee meeting, said the CBN would soon come out with efforts to fine tune the exchange rate framework.
According him, it will ensure “a more effective and liquid foreign exchange market, taking into account Nigeria’s strategic development priorities, with the policies being designed within an environment of regularly ensuring consistency with monetary and fiscal policies.”
Emefiele said that bank decided to to stick its foreign exchange policy instead the grueling effects of the emasculated currency-trading and import restrictions that had kept the inter-bank exchange rate at 197-199 per dollar since March, resulting in huge differential at the parallel market.
He said the decision was reached, taking into account Nigeria’s strategic development priorities; with the policies being designed within an environment of regularly ensuring consistency with monetary and fiscal policies.
The MPC held the policy rate at 11 percent after lowering it from a record 13 percent in November, Governor Godwin Emefiele told reporters on Tuesday in Abuja, the capital. That was in line with the forecasts of 23 of 24 economists surveyed by Bloomberg.
Emefiele, 54, has come under pressure to devalue the naira and ease foreign-currency controls that are hurting businesses and worsening the outlook for growth in Africa’s biggest oil producer. He has favored lowering interest rates instead to ease liquidity in the economy.
He said the 12 members of the bank’s MPC voted unanimously to keep monetary policy rate unchanged. It also held the cash reserve ratio for commercial banks at 20 per cent.
The CBN Governor said, “The committee observed that the last episode of low oil prices in 2005 lasted for a maximum period of eight months. However, the current episode of lower oil prices is projected to remain over a very long period.
“Consequently, it is imperative to brace up for a longer period of low government revenues from oil sources, which would necessitate hard and uncomfortable choices as the economy transits to more sustainable sources of revenue, consistent with the economic realities and strategic objectives of the country. In the circumstance, certain tradeoffs must be envisaged and duly accommodated.
“In view of the foregoing, the imperative for consistently sound and coordinated macroeconomic policy has become inevitable. In the medium term within which monetary policy is cast, the need to allow policy to produce the desired outcomes becomes a key consideration in the policy mix.
“Consequently, the bank is fine-tuning the framework for foreign exchange management with a view to ensuring a more effective and liquid foreign exchange market, taking into account Nigeria’s strategic development priorities; with the policies being designed within an environment of regularly ensuring consistency with monetary and fiscal policies.”
According to Mr. Emefiele, Nigeria’s foreign reserve currently stands at $28 billion.
On how to manage the reserves, the CBN boss said the apex bank was already building several scenarios around the oil price and that it would ensure the best options possible.
He said, “With time, you will see how we will provide the needed framework for a flexible forex regime. We are already working on different scenarios. And we will look at them. We will look at different scenarios at both management and the monetary policy committee.
“We will continue, as much as possible, to engage the fiscal authorities and share our positions to see that notwithstanding the drop in the oil prices, we will continue to run the government and continue to do business.
“We have said it before that the drop in oil prices is going to be with us for much longer than it used to be. Before, it used to be for about eight months. This time, it has been with us for more than 14 months and yet, we have not seen the light at the end of the tunnel. But we will continue to be alive to our responsibilities.”
On the difference the Stamp Duties policy would make in raising the non-oil revenue of the Federal Government, Emefiele explained that at this time that oil revenue was facing great challenges, the CBN had no option than to support the Federal Government on raising revenue from other sources.
“We will work with the banks to make sure that stamp duty is paid on each transaction above N1000 in the banks,” he said.
The governor said the committee, in consideration of the headwinds in the domestic economy and the uncertainties in the global environment decided by a unanimous vote to retain the Monetary Policy Rate (MPR), Cash Reserve Requirement (CRR), Liquidity Ratio (LR) and the asymmetric corridor of +2/-7 around the MPR.”
“The current episode of lower oil prices is expected to remain over a very long period,” the governor said. “Consequently, it is imperative to brace up for a longer period of low government revenues from oil sources which will necessitate hard and uncomfortable choices.”
The central bank has effectively fixed the naira at 197 to 199 per dollar since March. The currency was trading at about 300 on the black market on Tuesday.
“They’re living in denial,” Tosin Osunkoya, head of trading at Rand Merchant Bank Nigeria Ltd., said in an interview on CNBC Africa, predicting the currency will weaken to 315 to 320 per dollar on the parallel market. “Something has to give. People were expecting some measure of devaluation.”
Inflation, which accelerated to a three-year high of 9.6 percent in December and has been above the central bank’s target of 6 percent to 9 percent since May 2015.
President Muhammadu Buhari, who took office last year, has backed the central bank’s restrictive foreign-currency policy.
“I doubt if the central bank has the political capital to devalue,” Lanre Buluro, head of research at Primera Africa Securities Ltd., said by phone from Lagos. “By the decision not to devalue, the gap between the official and black-market exchange rate will continue to widen. People who have legitimate demand for dollars will not be getting it.”
-with agency reports
