Devaluation of Nigeria Currency

Again, Emefiele Forecloses Devaluation of Naira

Mr. Godwin Emefiele 

• CBN leaves interest rate unchanged at 13%

James Emejo in Abuja

Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele on Friday foreclosed speculations that the apex bank may further resolve to devalue the naira in order to stabilise its value at the foreign exchange market.

He said the CBN could not continue to take indeterminate policy decisions as there was currently no need to change the current exchange positions.

He stressed that the naira was presently appropriately priced.
The CBN also yesterday resolved to leave both the monetary policy rate (MPR) otherwise known as interest rate and banks' cash reserve ratio (CRR) unchanged at 13 percent with a corridor of +/- 200 basis points around the midpoint and 31 percent respectively.

Briefing journalists at the end of the two-day meeting of the Monetary Policy Committee (MPC) in Abuja, the CBN Governor said the committee took into account the underlying fundamentals of the economy, the evolving international economic environment, developments in oil prices as well as the need to allow for the unveiling  of the economic agenda of the federal government before arriving at its resolve to leave the rates unchanged.

He said the 12-member Committee decided by a vote of 8 to 4 to retain the MPR at its current level of 13 and by a unanimous vote to retain the CRR at current rate while 4 members voted to remunerate the CRR.

He said: "Given the choice between controlling either quantity or price, the limitations on choosing quantity were evident, necessitating the need to employ some flexibility around price while allowing current demand management measures to fully work their way through the economy.

"The Committee however noted that financial system stability considerations placed key limitations on the extent of considering price flexibility, creating a compelling need to balance measures to address the current vulnerabilities.

"On inflation, the Committee stressed that some of the drivers of the current pressure on consumer prices were transient and outside the direct influence of monetary policy.

“Pressure on food prices is expected to gradually wane as the planting season gives way to harvests in the months ahead. Early resolution of fuel scarcity would dampen transportation costs and improve food distribution across the country while improvements in electricity supply could steady output at lower costs."

Emefiele said the Committee expressed optimism that business confidence would continue to improve as government continues to unfold its economic plans.

He said the reassuring measures of the administration including efforts aimed at resolving fiscal challenges at the sub-national levels, and the fight against corruption and improving the business environment would unlock the inflow of foreign direct investment.

Emefiele also said while building up the fiscal buffers amid the present fiscal challenge could prove a difficult task, the CBN would nevertheless work with the fiscal authorities to boost accretion for the reserves.

The CBN governor explained that the recent accretion to foreign reserves had been made possible by the current administration's move to block leakages, allowing for trapped funds to be transferred to the center.

He also said the CBN was currently in talks with the authorities to see how to further boost capacity for local oil refining in other to limit pressure on the foreign exchange and create employment. But he wouldn't say if the apex bank plans to inject funds to achieve this objective.

He said the CBN would for now maintain its tight monetary policy stance in view of the volume of liquidity in the system.
On effort to sanitize the forex market, he said given that more than 95 per cent of foreign exchange transactions in the financial market are done through the inter-bank market, it would be wrong for people to judge the performance of the Naira against the dollar at the Bureau De Change (DBC) market.

According to him: "More than 95 per cent of transactions in the financial market that involve buying and procuring of forex happen at the interbank market. Statistics have shown that most of the transactions that happen at the parallel market rather than being for retail trade are people doing transactions for what we termed as illicit business.

"And for that reason, I continue to wonder why people will begin to use the BDC rate which constitutes an infinitesimal volume of transactions at the foreign exchange market as a basis to determine exchange rate and we do not consider that market as a major market in the foreign exchange market."

On the bailout package to state governments, Emefiele said the assistance had become inevitable given that over 50 per cent drop in revenue coupled with the fact that most of the states are weighed down with wage bill.

He added since the general belief that a labour is entitled to his wage, there was need for the bank to step in as a lender of last resort to the government by providing funding to address the situation.
He, however, said the amount that would be provided would be in form of a loan and not a grant to the states noting that this would help to stimulate economic activities.

He also pleaded for understanding from stakeholders particularly the manufacturers who complained that the recent exclusion of some items from accessing foreign exchange was hurting the economy.
While admitting that these were hard times, he said the CBN would assist the real sector in resuscitating the economy.