On Tuesday, the CBN’s MPC retained its policy rate and liquidity ratios and, more worryingly, according to Rand Merchant Bank (RMB), the Naira at 199 to the United States Dollar despite rapidly weakening economic fundamentals.
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In particular, the Committee stressed the need for the fiscal authorities to compliment 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.
Investors have seen a devaluation for Africa’s largest economy as long overdue, but Nigeria’s central bank has so far opted to restrict dollar supplies rather than moving its currency peg, which now stands at 197 naira to the dollar.
Giving details of the MPC meeting 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”.
“We try as much as possible to look at scenarios under different crude prices and we will continue to discuss at management and monetary policy committee level”, he added.
Central Bank Governor Godwin Emefiele said the 12 members of the bank’s Monetary Policy Committee voted unanimously to keep the rate unchanged.
He further noted that for foreign investors to be attracted to the economy there must be a realignment of the exchange rate and the only way it can be realigned is through devaluation via running a dual exchange where the official market defies the exchange rate.
This comes few weeks after the central bank kicked off its Zero COT, commission on turnover, policy for all commercial banks within the country. We can continue to incentivise them also by putting in place policies that will encourage them to do this. “In the circumstance, certain tradeoffs must be envisaged and duly accommodated”, he said.
“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”.
“In view of the foregoing, the imperative for consistently sound and coordinated macroeconomic policy has become inevitable”.
He put the balance in the country’s foreign reserve at $28 billion.
“The pressure at both the parallel and official markets will continue because the spread between the official market and the parallel market creates a window for round tripping”.
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An organised private sector group in a statement signed by its Director General, Muda Yusuf, pointed out that normalisation of the foreign exchange market was very crucial at this time as the impact of the current foreign exchange policies was being felt across the broad spectrum of the real sector, comprising big companies, medium enterprises, small businesses, micro enterprises and the informal sector.
