Sanusi maintains naira defence, laments dollarisation of economy
September 25, 2013 | 7:54 am| | | Start Conversation
The Central Bank of Nigeria (CBN) says it is committed to defending the local currency, the naira, even if it means depleting the nation’s foreign reserves.
Lamido Sanusi, governor of the CBN, while briefing the press after the September monetary policy committee meeting, Tuesday, said there was nowhere in the world where a national currency was left only for market forces to determine its value.
“We are committed to the stability of the exchange rate and we will not, unless we are forced to allow the naira to weaken,” the governor told reporters.
To this end, he declared that in the coming weeks strong foreign exchange (FOREX) policies would be put in place by the apex bank to checkmate arbitrage and round-tripping by financial institutions.
He also said that in more than 30 countries surveyed, the naira exchange rate remained one of the most stable, having depreciated by only 2.3 percent year-to-date compared with the massive depreciation in the value of other currencies such as the Indian rupee, the Indonesian rupiah, the Brazilian real, the South African rand, and the Ghanaian cedi.
Between July and now, the average WDAS exchange rate stood at N157.31 per dollar. At the interbank market, the exchange rate averaged N160/$, showing a depreciation of just 72k/$, while at the BDC segment it averaged N162.14/$, also representing a depreciation 50k/$.
The CBN governor was particularly worried over the existence of strong foreign-exchange demand pressures coming domestically, which are not necessarily linked to an increase in the import of goods.
This non-import-related demand, Sanusi said, was as a result of the build-up in political activities in the country and increasing resort to dollarisation of the economy by the political class.
He re-emphasised the CBN stance to continue to defend the naira in the face of these challenges, and to fast-track plans for adopting new regulations aimed at combating money laundering in the BDC segment.
Consequently, he announced that the CBN would soon come up with strong policies to check further demand pressures on foreign exchange and dollarisation of the economy, one of which may be to implement a policy it had been considering to stop further cash sales to the Bureau de Change operators.
“We will come out with policies in the near future. I am not going to tell you the details of what we are looking at. We think that there is something absolutely wrong with Bureau de Change buying hundreds of millions of dollars and not being able to account for them. We think that these monies are not being used for the importation of goods and services and we think that they are part of money laundering exercise and we have to deal with it,” Sanusi said.
The CBN also held on to its long-standing tight monetary policy stance, retaining the Monetary Policy Rate (MPR) at 12 percent with the corridor of +/-200 basis points around it. It also maintained the Cash Reserve Ratio (CRR) for private-sector deposits at 12 percent, while retaining the 50 percent CRR on public sector funds.
Sanusi said in taking the decision, the Monetary Policy Committee (MPC) was satisfied that the retention of the MPR, the CRR and further introduction of 50 CRR on public deposits in July had yielded their intended effects on stabilising the naira exchange rate while maintaining inflation within its target single range.
The apex regulator noted that the over-dependence on treasury bills (T-bills) income could not be sustained, with the implication that banks must become creative and change their models.
“The growth Nigeria needs will not come unless we achieve single-digit interest rate. In any case, Federal Government is keeping borrowing at the 2013 level of N572 billion,” Sanusi said.
The committee also noted that the fundamentals in the economy, which necessitated the July MPC measures, had not changed substantially except that the United States Federal Reserve had provided clearer insight into the tapering off of its asset purchase programme, also known as quantitative easing.
Meanwhile, inflationary pressure continued to moderate, staying below 10 percent for eight straight months, the lowest level in the past five years, on account of the apex bank’s tight monetary policy stance. Headline inflation declined from 8.7 percent in July to 8.2 percent in August. Food inflation also declined to 9.7 percent in August from 10 percent in July, while core inflation rose slightly to 7.2 percent in August from 6.6 percent the previous month.
For Razia Khan, analyst at Standard Chartered Bank, London, little was unveiled in terms of new initiatives at the meeting except the proposed FX policy.
“The Central Bank of Nigeria keeps its MPR on hold at 12%, and keeps the CRR unchanged as expected. Ahead of the meeting, the key point of interest was FX policy. While little was unveiled at this meeting in terms of new initiatives, CBN comments will nonetheless provide reassurance,” she said.
Also commenting on the MPC decision yesterday, Sola Adegbesan, head of global market sales at Stanbic IBTC Bank, said, “It is a bit encouraging to know where the pressure is coming from with regards to FX.”
For Kubi Momoh, head, Market Risk, UBA: “For the FX, CBN needs to check where the leakages are coming from – we need to check the activities of oil companies,” adding that the banking system remains unbalanced in terms of risk and rewards.
By: Onyinye Nwachukwu, Abuja & Iheanyi Nwachukwu
Big Read |