CBN retains key monetary rates, faults agency’s assessment of economy
THE Central Bank of Nigeria(CBN) has explained that the need to allow the last monetary economic solution prescriptions for the country’s economy by its the Monetary Policy Committee (MPC) to get rooted and produce the necessary result informed the Committee’s retention of the key monetary rates.
This was disclosed yesterday by the CBN Governor and Chairman of the MPC, Godwin Emefiele at a briefing in Abuja on the Committee’s first meeting for the 2015.
Emefiele also faulted the recent J.P Morgan’s assessment and classification of the Nigerian economy as part of the global economies that should be placed on negative watch because of the failing oil prices at the international market.
He insisted that the Nigerian economy was not entirely dependent on oil mineral resources as he faulted the international rating agency’s assessment.
The committee yesterday retained all the monetary rates: the Monetary Policy Rate (MPR) at 13 per cent, the Cash Reserve Requirement, (CRR) on Private Sector deposits at 20 per cent, the CRR on Public Sector deposits at 75 per cent, and the liquidity ratio at 30 per cent.
Emefiele explained that all the international and domestic economic under-pinnings at the moment required that the rates be maintained, while the committee would continue to keep a close watch, particularly on the Naira to ensure that it did not unnecessarily lose its value.
He gave reasons for the retention of the key rates, saying: “The committee noted with satisfaction the growth performance of the economy as well as the year-end inflation outcome.” It was, however, concerned about a number of risks including the security challenge in parts of the country, which has continued to disrupt farming and related activities, and the sustained decline in oil GDP. With regard to inflation, the committee noted the recurring challenge of excess liquidity in the banking system and the possible complications arising from capital flow reversal, as well as the demand pressure in the foreign exchange market.
“On the external front, falling oil prices, slowing global output recovery, divergent monetary policy postures between the U.S. and Euro area as well as non-inclusive growth remain very important risks. The gradual normalisation of monetary policy by the U.S. Federal Reserve could exacerbate the current retrenchment of portfolio flows and increase pressure on currencies in emerging and developing countries including Nigeria.
In the light of the above considerations, the committee observed that its decisions of November 2014 needed time for the effects to crystallise in the economy and therefore, voted to retain the current position.”
He then hinted on the next line of action by the committee in line with its mandate: “With the level of liquidity in the market, these are foreseeable activities in the market to review the monetary policy. My decision is the decision of central bank governors worldwide to review the position further upward. We have the responsibility in line with our core mandate to defend the currency and exchange rate of the naira.
“We have also made it very clear that we are monitoring the market to the extent that we feel that the inter-bank market will continue to support trading activities of both Nigerians and foreign investors.
“And at any point, where we discover that the market is unable to absorb or to provide the liquidity that is needed, the CBN will come up to intervene in the market, to provide the liquidity that is needed for transaction to go on for legitimate transaction.
“We have a mandate to ensure that transaction activities taking place in the market are only for legitimate transactions.
“We will ensure that activities in the market continue to be in place, anybody that needed to do business in the country will be allowed to do so but for only legitimate purposes. We will not through late speculative attacks on the devaluation.”
Asked if the apex bank was contemplating another Naira devaluation, Emefiele said: ‘‘We can comment on that for now, whether or not there would be devaluation. It is again, an issue that will be subjected to review from time to time. At this time, the naira is appropriately priced and there is no need for anybody to worry about devaluation.
At this time, the currency is appropriately priced.
“Our assessment of devaluation and market remain robust. We will ensure all economic activities in the market are supported by the CBN from time to time. We are aware of the gap in the Foreign Exchange market, we are doing our best as much as possible to bridge the gap by intervening in the market, because we know that allowing the gap, create certain opportunities for some people.”
“We will continue to ensure that exchange rate does not spiral out of control. That is why we are watching it and at the appropriate time, certain actions will be taken, what action I don’t know, they are monitoring it, it is the decision of the committee of governors.
“This time, we will at least take actions that will bridge the gap so that the exchange rate does not go out of control.”
On the placement of the country under the negative watch list by JPMorgan, Emefiele said that it was ill-informed, adding however that CBN would not relent in its efforts to ensure that Nigeria remained in the JPMorgan’s Emerging Market Index.
He described the plan of JP Morgan’s action as a result of misconception that the nation’s bond and foreign exchange markets were illiquid.
According to him: “CBN’s net open position on Foreign Exchange trading by banks was reviewed upward to one per cent of shareholders’ fund, when we assessed the previous policy direction. We also meant in our policy directive that banks should close their trading positions daily, as opposed to 24-hour trading, because of assessed volatility in the market and suspicion that there was speculative attack on the currency, not because of liquidity issues.
He added: “As you know, we have the core mandate to defend the economy and the Naira and would not let down in our efforts to achieve this. However, we would engage the team of JPMorgan further with our figures as evidence of our claims, and we are confident they would see reason with us.
“It is possible that after this pronouncement, we look at the position and the market and feel comfortable, we may come back tomorrow to review the net open position further. We must reiterate that we have the core mandate to defend the currency and the exchange rate of the Naira.
“We also need to make it clear that we are monitoring the market to see that the interbank market will continue to support trading activities of both Nigerians and foreign investors and that at any point we discover that the market is unable to absolve or to provide the liquidity that is needed, the CBN will come with intervention that will provide the liquidity that needed for transactions to go on and these must be for legitimate transactions.
“We are committed to remaining on the index and will do everything possible to continue to be there because we know the adverse impact that the exclusion from the index will cause the country. For now, what is paramount in our mind is that the external reserve must be defended and the exchange rate policy must be defended. We will provide foreign exchange for legitimate business and will not tolerate speculative attack on the Naira.”