Update: We’ve only one Exchange Rate window – CBN Gov

….as MPC retains MPR at 14 %, CRR 22.5 %, Liquidity Ratio 30.00%

The Central Bank of Nigeria (CBN) Tuesday, denied operating a multiple exchange rates in the foreign exchange market as reported in some media outfits saying that there is only one exchange rate regime being maintained by the bank.

The CBN Governor, Mr Godwin Emefiele refuted this while briefing journalists at the end of the 254th meeting of the Monetary Policy Committee (MPC) held at the Apex bank headquarters in Abuja. He said that those behind the allegations were out to smear the CBN and paint the monetary authority in bad light.

“What we are trying to do is to make more foreign exchange available within the range of our available resources to sectors that we consider as priority sectors and we will continue to do that and hoping that as we increasingly do that, the urge for people to go to the parallel market will reduce.

I want to assure people that we would increasingly allocate resources to those very important sectors of the economy.

But I think it must not also blow over some of the things I have heard in the press over ‘multiple exchange rates’; I have heard about parallel market and airline rate, I have heard about budget rate, I have heard about pilgrim rate and the rest of them.

It’s unfortunate and unfair as that some of those that we’ve read discussing these issues are those who have direct access to the Central Bank of Nigeria one would have expected that they would talk to us.

But of course the objective that they are pursuing is best known to them. Budget rate is a rate used in forecasting, it has forecast rate of budgets that are always there for history and it is a rate that is used just to determine the budget and as you know budget is a forecast.

So I cannot understand why people are using budget rate as a basis to say it’s an exchange rate in the market. The parallel and fixed market rate is the same one rate as far as I am concerned.”

Emefiele however, said “It is important for people not to play to the gallery and begin to make allegations.

They know what they are doing and they know what they are saying but their motive is best known to them.

I have heard about Airline and Fuelling Pump Rate, it is untrue, these are all rates that operate within the interbank segment and it operates within a range.

So I thought it is important for me to address that because we have heard so many comments regarding that and I pray and beg those who are out there fomenting this bad information in other to paint the monetary authority in bad light to please desist. “

Presently, there is a wide gap between the official exchange rate of the naira which stood at N305 to the dollar and a parallel rate of over N490.

Meanwhile the MPC decided by a unanimous vote to retain the MPR at 14.0 per cent alongside all other policy parameters.

The MPC retains the MPR at 14 per cent; Cash Reserve Ratio (CRR) at 22.5 per cent; Liquidity Ratio at 30.00 per cent; while retaining the Asymmetric corridor at +200 and -500 basis points around the MPR.

This, the Committee said was done in consideration of the headwinds in the domestic economy and the uncertainties in the global environment.

The Committee further noted that Inflationary pressures would begin to subside as non-oil output recovers and the naira exchange rate stabilizes. Until then, it stressed, a rate cut would worsen the inflationary conditions and undermine the current outlook for stability in the foreign exchange market.

The Apex bank governor said “The Committee also feels that doing so would further aggravate demand pressures while undermining existing income levels in the face of the already expansionary monetary policy and increasing inflationary pressure which will make the economy unattractive for foreign and domestic investment.

Given these limitations, the Committee was reluctant to lower the policy rate on this occasion but remained committed to doing so when the conditions permit.

Given the growth in money supply arising from unconventional monetary policy operations of the Bank and implications for price and exchange rate developments, the Committee is committed to moderating growth in narrow money in the 2017 fiscal year in line with the Bank’s monetary growth benchmarks.”

According to the Committee, total foreign exchange inflows through the CBN increased significantly by 82.45 per cent in December 2016 owing mainly to the increase in oil prices.

Total outflows, however, spiked during the same period. The Committee noted that the average naira exchange rate remained stable at the inter-bank segment of the foreign exchange market in the review period.

The medium term outlook based on available data and forecast of key economic variables indicate a more resilient economy in 2017. Growth is expected to turn positive in fiscal 2017, as prior policy lags converge and the fiscal space becomes more accommodative.

MPC pointed out that the agricultural sector is expected to play a bigger role in driving growth, given the expansion of the Anchor Borrower Program, as well as other developmental initiatives of the Government.

The Committee said it hopes that given the thrust of the 2017 budget and accompanying sectoral policies, output growth should resume in the short to medium term.

The MPC, therefore, lends its voice to efforts for an early finalization of the 2017 Federal Budget by the authorities concerned, and the resolve to pursue a non-oil driven economy, as these will go a long way in stimulating aggregate demand and restoring confidence in the economy.

The Apex bank noted that Data released by the National Bureau of Statistics (NBS) in November 2016 showed that the economy contracted further by 2.24 per cent in Q3 2016, having slipped into recession following another contraction in output in Q2, 2016.

Although the overall contraction in Q3 was greater than was observed in Q1 and Q2, the non-oil sector grew by 0.03 per cent in Q3, driven mainly by agriculture, which grew by 4.54 per cent.

The Committee is of the view that the key undercurrents i.e. scarcity of foreign exchange, low fiscal activity, high energy prices and the accumulation of salary arrears – cannot be directly ameliorated by monetary policy actions.

It however, hopes that the recent increase in oil prices would be complemented by 10 production gains to provide the needed tailwinds to sustainable economic activity.

In that regard, the Committee commends the commitment of the fiscal authorities to step up efforts to fill the aggregate demand gap through a speedy resolution of the domestic indebtedness of the federal government to states and local contractors.

The Committee believes that doing so will aid the effort towards economic recovery.

On developments in Money and Prices, the committee observed that money supply (M2) grew by 19.02 per cent in 2016, being 8.0 percentage points higher than its programmed limit.

This, according to the Committee, underscored the necessity of keeping the economy adequately lubricated in the face of declining output. Growth in Net Domestic Credit (NDC) was 24.79 per cent at end of December 2016, being 17.94 per cent above its provisional benchmark for 2016.

Likewise growth in net credit to 12 government, at 58.84 per cent, surpassed its programmed target of 47.4 per cent.

In effect, all the major monetary aggregates exceeded their programmed provisional benchmarks for fiscal 2016.

Inflation
According to the MPC, headline inflation (year-on-year) continued to rise, creeping up in December 2016 to 18.55 per cent from 18.48 per cent in November, and 18.33 per cent in October, thus sustaining the upward momentum since January 2016.

The increase in headline inflation in December 2016 was driven by increase in the food component, which inched up from 17.19 per cent in November to 17.39 per cent in December.

Core inflation, on the other hand, moderated slightly to 18.05 per cent in December 2016 from 18.24 per cent in November.

The Committee observed the increases in the month-on-month inflation rate in November and December, in contrast to successive declines between June and September 2016.

It noted that the structural factors driving the sustained pressure on consumer prices, such as the high cost of power and energy, transport, production factors, as well as rising prices of imports are yet to abate.

Nonetheless, the Committee estimates that the current policy stance and other measures directed at improving food production would combine with base effect to usher-in some moderation in consumer prices in the short to medium term.

Money market interest rates fluctuated in tandem with the level of liquidity in the banking system.

Thus, average interbank call rate, which stood at 15.34 per cent on 21st November 2016, closed at 9.90 per cent on December 30, 2016.

Between these periods, the interbank call rate averaged 13.59 per cent.

The average interbank call rate however, fell to 3.00 per cent on December 9, 2016, due to an increase in net banking sector liquidity to N495.48 billion on December 8, 2016, following the payment of statutory revenue to states and local governments as well as maturity of CBN bills during the period.