Central Bank of Nigeria (CBN) yesterday expressed displeasure on the dollarisation of the naira by politicians, saying that it would soon take action on that. This is as it retained the Monetary Policy Rate (MPR) at 13 per cent with private sector Cash Reserve Requirement (CRR) at 20 per cent while the public sector CRR remained at 75 per cent. It also maintained the banking industry liquidity ratio at 30 per cent.
Briefing newsmen immediately after the Monetary Policy Committee (MPC) meeting in Abuja, Governor of CBN, Mr. Godwin Emefiele, spoke against the backdrop of a situation where politicians, schools, landlords and host of others no longer demand for payment in naira but in dollar.
According to him, the Nigerian economy has now been partially dollarised as some Nigerians now transact businesses in dollar, thereby putting a lot of pressure on the naira.
To this end, he warned that the apex bank would soon descend on those transacting businesses in dollar, adding that the naira remained the Nigerian currency and should be used for all transactions in the country.
For the commercial banks that indulge in this malfeasance, he warned they would soon be sanctioned if caught in the act. He, however, promised to continue to keep Nigeria’s external reserve, which currently stands at $30 billion, robust.
Emefiele also said part of the strategies would be to block frivolous demand for dollar, adding that banks have a lot to do in this regard.
“Reserves are at $30 billion right now. Given the pressures and vulnerability we have seen in the last couple of weeks, I think it is a good level of reserve and can support close to about five to six months of import. And this is enough to support business and the economy,” he stated.
On the state of the naira, the CBN governor said the closure of the Retail Dutch Auction System (RDAS) window of the foreign exchange market on February 18, 2015 had unified the foreign exchange market.
Consequently, he said the naira depreciated by N17.9k or 9.04 per cent in the period under review as the exchange rate opened at N180.1/US$ and closed at N198.0/US$, with a daily average rate of N198.0/US$.
On the exchange rate, the governor said: “The exchange rate at the bureau de change segment of the market is N220, N221 to one dollar. I will like to say that that remains a shallow market compared to the interbank market. In terms of percentage in the interbank market, I will like to say that it is very insignificant. That market (black market) deals mainly in transactions that are not documented. And for that reason, we will not be looking at the world’s outlook for the naira by looking at the bureau de change rate. But when you look at the outlook based on the interbank, which is today an average of N198 like I read in my statement, I believe that given the pressure we have seen in the market as a result of the drop in crude prices, and the pressures that have come with, adjusting the currency at the level it is now at N198, I will say, is ok and sufficiently appropriate.
But I think that a number of actions that will be taken, going forward, will deepen the market, improve supply into the market and look at areas where demand pressures or demand inefficiency can be cut and I am sure in due course, CBN will begin to take actions that will look at areas where people can make demands that will not be effective, demands that are not useful for the economy.”
As headline inflation remained within the 6.09 per cent band established by CBN, the governor said the committee noted with concern the gradual increase in the year on year headline inflation during the first two months of the year from 8 per cent in December 2014 to 8.2 per cent in January and further to 8.4 per cent in February 2015.
“The underlying inflationary pressures came largely from food (particularly imported food) and the core components. Food inflation rose from 9.2 per cent in December 2014 to 9.4 per cent in February 2015 while core inflation increased from 6.2 to 7.0 per cent during the same period. The major risks to inflation, the committee noted, include elevated aggregate spending in the run-up to the 2015 general elections, the likely higher import prices on the strength of an appreciating dollar and possible food supply shocks linked to insurgency and insecurity in some major agricultural zones of the country,” he disclosed.
Considering the macro and micro economic variables and the need for the committee’s previous decisions to be allowed time for their effects to fully permeate the economy, Emefiele said the MPC voted to maintain the current position as all 11 members unanimously voted to retain the MPR at 13 per cent; retain the CRR on private sector deposits at 20 per cent; retain CRR on public sector deposits at 75 per cent and retain the liquidity ratio at 30 per cent.
On the interest rate outlook, the governor said: “The stance now remains tight and we will continue to monitor liquidity in the system. And as we monitor the liquidity in the system, particularly during this election season, in the course of time, CBN will be taking certain actions. We don’t know what it is but it depends on the size of liquidity and how we see the rate people use liquidity, either to target the road sector of the economy or whether they use it for what I call the unholy attitude of attacking the currency. Depending on the direction in which we begin to move, we will react appropriately. But I think interest rate outlook for now still remains tight in the main,” he explained.
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