Chat 212 - News Summary...
- CBN, has ruled out the possibility of an interest rate cut in the near future, saying this would have dire consequences for the economy.
- CBN governor said that the monetary tightening was the price to pay for financial system stability, which is the core mandate of the apex bank.
Chat 212 - Newsmail Report...
Governor, Central Bank of Nigeria, CBN, Mallam Lamido Sanusi, has ruled out the possibility of an interest rate cut in the near future, saying this would have dire consequences for the economy.
Briefing journalists on the sidelines of the just-concluded World Bank/IMF annual meeting in Washington DC, Sanusi said a reduction in the Monetary Policy Rate, MPR, would result in an inflationary spiral and put pressure on the naira at the foreign exchange market.
Acknowledging the agitation for a rate cut to ease borrowing costs within the economy, the CBN governor said that the monetary tightening was the price to pay for financial system stability, which is the core mandate of the apex bank.
The retention of the MPR at 12 per cent for almost three years has become a sore point for real sector players who insist that the time was ripe for some monetary easing, now that inflation was in single digit.
Sanusi, however, said that it was easy to reduce rate by printing more money but with inflation under control and the naira holding steady relative to other emerging market currencies, he stressed that there is no reason to consider easing.
His words: “We have stability that is very easy to take for granted. In 2009, when I became CBN governor, inflation was 15.6 per cent, the stock market had lost 70 per cent of its value, onethird of the banks were about to collapse. The official exchange rate was N145, at the Bureaux de Change, BDC, it was being sold at N190. It is very easy when you have established stability for people to start screaming that you are holding policy too tight.
“You have had a stable exchange rate for two years; we have brought inflation from 15.6 per cent to 8.2 going to below 8 in December. “The stock market has been up 30 per cent between December and now and people are complaining. You want lower interest rates? Where do you want the naira? 180,190? Where do you want inflation rate? 13, 14 per cent? I can deliver interests rates of seven per cent if you want today; it is just to print money. The Fed (US Central Bank) has delivered zero, it is easy. Print the money, the interest rate crashes, but where do you want your naira? People want a stable exchange rate, they want to have reserves; they want to have low inflation and they want to have low interests rates? I am not a magician.”
Sanusi, however, affirmed that when the bank is satisfied that conditions are conducive, it will consider easing, but for now, “it has to keep its eye on the ball.”
“If you look at the CBN Act, our objectives are very clear; we are given responsibility for price stability, for protecting the external value of the naira, which is exchange rate stability, for maintaining the reserves of the country and for financial system stability. We have to keep an eye on the ball.
“It is very easy to call the shots from the sidelines. Supposing I decide today to lower the rate of interest, which is print more money, a number of things will happen. Maybe inflation would go up, exchange rate weakens.
“Now once the foreign portfolio investor believes the naira is going to be weak and he is therefore going to lose money, remember he bought in dollars, and then you are going to wipe out his profit by basically changing the exchange rate, everybody decides to run out of Nigeria. Then the naira crashes from N160 to N180 or N190 and the stock market crashes and the people who are holding shares default on their loans and the banks get into problems,” he added.
The CBN governor also explained reason for the clampdown on BDC operators and the ban on importation of dollars by banks, pointing out that there were a lot of abuses going on in the system that were hurting national interests.
He said some BDC operators in Kano were found to be buying dollars from Nigerian bank and taking the cash to Saudi Arabia to sell.
While he pointed out that there was no law limiting the amount of foreign exchange people could take out of Nigeria, those in that trade should buy their dollars elsewhere.
He also reacted to complaints by Nigerians in the Diaspora over the new policy that compel banks to pay Western Union and Monogram cash remitted from abroad to beneficiaries in naira instead of dollars, insisting that this was the standard practice.
Sanusi said the CBN had allowed dollar payments because banks had been cheating beneficiaries by offering low rates but that with the current situation, the CBN had decided to review the position.
Meanwhile, the CBN governor was named Central Bank Governor of the Year (sub-Saharan Africa) for the third time by Emerging Markets magazine.
The award, given at a special ceremony held on Saturday night in Washington DC, is in recognition of the huge progress being made in financial system stability, financial inclusion and the drive towards payment system reforms in Nigeria.
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