LEADERSHIP
The Central Bank of Nigeria (CBN) disappointed financial markets by ignoring calls to devalue the currency, while keeping its benchmark interest unchanged to help support an economy hit by plummeting oil prices.
The CBN’s Monetary Policy Committee (MPC) held the policy rate at 11 per cent after lowering it from a record 13 per cent in November, Governor Godwin Emefiele told reporters yesterday in Abuja.
Emefiele has come under pressure to devalue the naira and ease foreign- currency controls that are hurting businesses and worsening the outlook for growth.
He has favoured lowering interest rates instead to ease liquidity in the economy.
“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.”
Commenting on the devaluation of the Naira and the fall in the price of crude oil, the CBN governor disclosed: “We are already working on different scenarios; the models are being worked on and we will look at them as much as possible and we will continue to discuss at management levels and try as much as possible to continue to share our thoughts with the fiscal authorities with a view to harmonizing the positions to ensure that, notwithstanding the drop in crude prices, we are able to continue to run the government and continue to do business.”
According to him, there was the need for the fiscal authorities to complement the Bank’s low interest rate policy orientation by properly coordinating its borrowing activities (and rates) with the Bank in order to push the common objective of stimulating banking system credit delivery at low interest rates to the key sectors of the Nigerian economy.
He noted that given the current economic reality of dwindling oil revenue and the rather unclear outlook for commodity prices, there was the need “for a recalibration of the fiscal strategy to increasingly explore opportunities in non-oil tax revenue.”
The CBN governor then revealed that members of the Committee voted 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 MPC voted to retain the CRR at 20.0 per cent, MPR at 11.0 per cent, Liquidity Ratio at 30 per cent, the asymmetric corridor at +200 basis points and -700 basis points,” he announced.
The Bureau De Change (BDC) market, Emefiele said, “is not a very important market as far as we are concerned. It is insignificant in terms of volume – which is about 5-10%; it is high time we all realize and agree that government cannot continue to provide foreign exchange to support the needs of that market. The Central Bank will continue to work with them because they continue to remain licensed under the CBN; we will try to see how we will assist them to deepen activities in that market and then they can source forex, just like we suggested, from the autonomous market.”
Emefiele added that “the imperative for consistently sound and coordinated macroeconomic policy has become inevitable. 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.”
He also said the CBN is “very conscious of this and, like we said earlier, we are in an era where the low crude prices will remain for a long time. It’s not going to like in 2008 where it was just transient at eight months; so far we have seen this one for 14 months; there is no light yet at the end of the tunnel. We will continue to be alive to our responsibilities to ensure that both fiscal and monetary authorities ensure that we provide for all the needs of Nigerians, but again I would like to appeal that, yes, some of these actions and policies maybe painful, (but) they’re taken in the interest of country.”
The CBN governor warned that the current episode of lower oil prices could remain over a very long period. Consequently, Nigerians should 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,” he said.
Speaking on the stamp duty initiative, the governor explained that at this time when revenue from oil appears to be a big challenge, “we do not have any choice but to continue to support the government and fiscal authorities to seek other ways to boost non-oil revenues revenue.”
According to him, stamp duty is one option.
“The numbers are there in the budget about what we expect to generate from stamp duties in 2016,” he said. “We will try as much as possible, working with the banks, to ensure that all transactions are captured in a way that will ensure that every transaction that is carried out gets debited N50.
“We have not dimensioned it yet; in due course Nigerians will begin to know what this will translate into. It will be designed to help the activities of government to improve its revenue.”
LEADERSHIP reports that the apex bank has fixed the naira at N197 to N199 per dollar. However, the currency was trading at about N305 on the black market yesterday.
“They’re living in denial,” Tosin Osunkoya, head of trading at Rand Merchant Bank Nigeria Ltd., said in an interview on CNBC Africa, predicting that the currency will weaken to N315 to N320 per dollar on the parallel market. “Something has to give. People were expecting some measure of devaluation.”
Inflation accelerated to a three-year high of 9.6 per cent in December, and has been above the central bank’s target of six per cent to nine per cent 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.”
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