Central Bank of Nigeria, CBN will resist pressure to devalue the naira since it retains ample funds to defend the currency, its spokesman, Ugochukwu Okoroafor has said.
Naira has fallen in recent months, trading outside the CBN’s target band of 150-160 naira to the U.S. dollar since June, initially due to foreign investors booking profits on their naira assets, and on importers buying dollars.
CBN’s spokesman, Okoroafor said by telephone to Reuters that the institution remained committed to the band.
“We have the resources to meet demand. We are still determined to keep within that band,” he said on Monday.
But a similar naira weakness, partly caused by excessive spending prior to 2011 national elections, forced the central bank to lower the target band from 145-155 naira to the dollar in November that year, after months of struggling to prop it up.
Pressure on the currency of Africa’s second biggest economy will worsen next year as elections loom again in 2015 - traditionally at a time when government expenditure becomes very loose, pumping excess liquidity into the banking system.
The unit has hovered around the 162-163 level in recent months, on strong demand for dollars. It touched a 20-month low of 163.70 naira to the dollar last week.
It closed at 163.10 naira to the dollar on Monday, after it became clear the central bank would not intervene again to prop it up. By 0910 GMT on Tuesday it had rebounded to 162.90.
“We believe that the probability of (moving the trading band) is slim in the coming months,” said Gaimin Nonyane, an economist at Ecobank, adding that the bank had ample funds.
“Such a move would increase inflationary pressures. Given the Central Bank’s commitment to promoting price stability, we think the current rate will be maintained.”
Central Bank governor Lamido Sanusi has repeatedly warned that excessive election spending poses an inflation risk that he is ready to counter with tight monetary policy.
Showing posts with label CBN. Show all posts
Showing posts with label CBN. Show all posts
Wednesday, 4 September 2013
Tuesday, 3 September 2013
CBN to resist pressure to devalue naira
The Central Bank of Nigeria, yesterday, said it will resist pressure to devalue the naira since it retains ample funds to defend the currency.
Mr. Ugochukwu Okoroafor, CBN spokesperson said the apex bank Governor is expected to stay the course until his term is up in 10 months.
The naira has fallen in recent months, trading outside the CBN’s target band of 150-160 naira to the U.S. dollar since June, initially due to foreign investors booking profits on their naira assets, and on importers buying dollars.
Okoroafor said by telephone that the institution remained committed to the band. "We have the resources to meet demand. We are still determined to keep within that band," he CBN Deputy Governor, Kingsley Moghalu also said there were no plans to change the band in an interview with Reuters in London on Tuesday.
"We are comfortable with the band as it is currently - we do not have any intention of doing anything spectacular," he said.
But a similar naira weakness, partly caused by excessive spending prior to 2011 national elections, forced the central bank to lower the target band from 145-155 naira to the dollar in November that year, after months of struggling to prop it up.
Pressure on the currency will worsen next year as elections loom again in 2015 - traditionally at a time when government expenditure becomes very loose, pumping excess liquidity into the banking system.
"It's the case all over the world - governments tend to spend a lot leading up to elections," Moghalu said.
The unit has hovered around the 162-163 level in recent months, on strong demand for dollars. It touched a 20-month low of 163.70 naira to the dollar last week.
It closed at 163.10 naira to the dollar on Monday, after it became clear the central bank would not intervene again to prop it up. By 0910 GMT on Tuesday it had rebounded to 162.90.
"We believe that the probability of (moving the trading band) is slim in the coming months," said Gaimin Nonyane, an economist at Ecobank, adding that the bank had ample funds.
"Such a move would ... increase inflationary pressures. Given the central bank's commitment to promoting price ... stability, we think the current rate ... will be maintained."
Nigeria's consumer inflation ticked up to 8.7 percent in July, though Moghalu said he expected it to stay in single digits this year.
Central bank governor Lamido Sanusi has repeatedly warned that excessive election spending poses an inflation risk that he is ready to counter with tight monetary policy.
Analysts expect Sanusi will stick to that path until his planned departure next July when his five-year term expires. RISKS OF DEVALUING
"The central bank will continue to defend exchange rate stability ... as long as governor Sanusi remains in charge," said Standard Bank's Samir Gadio.
Sanusi has spent billions of dollars of foreign reserves over the past months in keeping the naira, which has lost 4.6 percent since the year, within its target corridor.
But Nigerian foreign exchange reserves stood at $46.85 billion by Aug. 29, down only 0.23 percent month-on-month from July, so they are not being rapidly depleted.
"Nothing about the central bank's recent guidance or behaviour suggests that is about to allow a devaluation of the naira," said Alan Cameron, economist at CSL Stockbrokers.
The bank tightened liquidity significantly in July, slapping a 50 percent reserve requirement on public sector deposits, up from 12 percent previously. That sucked 1 trillion naira out of the banking system and although the effect on the naira was shortlived, it showed the lengths to which the bank will go.
Moghalu said, however, that the purpose of the reserve requirement hike was to encourage banks to lend more, rather than to boost the currency.
"We would like to see more real economy lending and an expansion of the deposit base, and higher deposit rates, so that people can save," he said.
Another factor, said Charles Robertson, economist at Renaissance Capital, was that pressure on emerging market currencies generally could subside in the coming weeks, so the naira may start to recover all by itself.
"We are comfortable," said Moghalu. "The naira has appreciated a bit in recent days."
Mr. Ugochukwu Okoroafor, CBN spokesperson said the apex bank Governor is expected to stay the course until his term is up in 10 months.
The naira has fallen in recent months, trading outside the CBN’s target band of 150-160 naira to the U.S. dollar since June, initially due to foreign investors booking profits on their naira assets, and on importers buying dollars.
Okoroafor said by telephone that the institution remained committed to the band. "We have the resources to meet demand. We are still determined to keep within that band," he CBN Deputy Governor, Kingsley Moghalu also said there were no plans to change the band in an interview with Reuters in London on Tuesday.
"We are comfortable with the band as it is currently - we do not have any intention of doing anything spectacular," he said.
But a similar naira weakness, partly caused by excessive spending prior to 2011 national elections, forced the central bank to lower the target band from 145-155 naira to the dollar in November that year, after months of struggling to prop it up.
Pressure on the currency will worsen next year as elections loom again in 2015 - traditionally at a time when government expenditure becomes very loose, pumping excess liquidity into the banking system.
"It's the case all over the world - governments tend to spend a lot leading up to elections," Moghalu said.
The unit has hovered around the 162-163 level in recent months, on strong demand for dollars. It touched a 20-month low of 163.70 naira to the dollar last week.
It closed at 163.10 naira to the dollar on Monday, after it became clear the central bank would not intervene again to prop it up. By 0910 GMT on Tuesday it had rebounded to 162.90.
"We believe that the probability of (moving the trading band) is slim in the coming months," said Gaimin Nonyane, an economist at Ecobank, adding that the bank had ample funds.
"Such a move would ... increase inflationary pressures. Given the central bank's commitment to promoting price ... stability, we think the current rate ... will be maintained."
Nigeria's consumer inflation ticked up to 8.7 percent in July, though Moghalu said he expected it to stay in single digits this year.
Central bank governor Lamido Sanusi has repeatedly warned that excessive election spending poses an inflation risk that he is ready to counter with tight monetary policy.
Analysts expect Sanusi will stick to that path until his planned departure next July when his five-year term expires. RISKS OF DEVALUING
"The central bank will continue to defend exchange rate stability ... as long as governor Sanusi remains in charge," said Standard Bank's Samir Gadio.
Sanusi has spent billions of dollars of foreign reserves over the past months in keeping the naira, which has lost 4.6 percent since the year, within its target corridor.
But Nigerian foreign exchange reserves stood at $46.85 billion by Aug. 29, down only 0.23 percent month-on-month from July, so they are not being rapidly depleted.
"Nothing about the central bank's recent guidance or behaviour suggests that is about to allow a devaluation of the naira," said Alan Cameron, economist at CSL Stockbrokers.
The bank tightened liquidity significantly in July, slapping a 50 percent reserve requirement on public sector deposits, up from 12 percent previously. That sucked 1 trillion naira out of the banking system and although the effect on the naira was shortlived, it showed the lengths to which the bank will go.
Moghalu said, however, that the purpose of the reserve requirement hike was to encourage banks to lend more, rather than to boost the currency.
"We would like to see more real economy lending and an expansion of the deposit base, and higher deposit rates, so that people can save," he said.
Another factor, said Charles Robertson, economist at Renaissance Capital, was that pressure on emerging market currencies generally could subside in the coming weeks, so the naira may start to recover all by itself.
"We are comfortable," said Moghalu. "The naira has appreciated a bit in recent days."
Sunday, 1 September 2013
CBN as misguided Father Christmas
By Les Leba
In view of the apparently ‘boundless’ funds at the disposal of Nigeria’s Central Bank for its independent interventions, observers, including the National Assembly have frowned at the proprietary and the shrouded protocol surrounding the values and the choice of beneficiaries of the apex bank’s bonanza.
The CBN, however, insists that these interventions are in consonance with its enabling Act, and therefore distinguishes its cash gifts as Corporate Social Responsibility (CSR), in furtherance of its primary mandate for “price stability” to drive real economic growth.
The following examples of CBN interventions in some sectors are by no means exhaustive; for example, Bayero University, Kano, has so far collected N1bn out of a projected N4bn donation; the University of Benin similarly got an ‘awoof’ of N500m a few months after Lamido Sanusi received an honourary award from that university. Lately, the media reported CBN’s donation of N10bn for infrastructure capacity and manpower development at Uthman Dan Fodio University, Sokoto.
The Vice Chancellor of University of Lagos, Prof. Rahman Bello, had earlier also confirmed a N10bn project intervention from the CBN! Accordingly, Mr. Kabir Nuhu Koko, CBN Deputy Director for Project and Planning similarly confirmed that the CBN has selected “six secondary schools, six tertiary institutions and six public sector institutions across the nation’s six geopolitical zones for its intervention in 2013".
The criteria for selecting beneficiary institutions from each geopolitical zones are probably only known to CBN. Nonetheless, some observers may be concerned that the establishment of a “project and planning services department in the CBN may also be another wasteful duplication of the existing primed capacity and manpower structures of the Ministry of Education”.
In similar vein, CBN’s donation of N100m to victims of Boko Haram menace in Kano and the apparent afterthought of extending similar financial assistance to victims of the bomb attack at the Catholic Church, Madalla, Niger State, appear to also duplicate the functions of the National Emergency Management Agency.
The value of the above social interventions, however, pale into insignificance in comparison with the trillions of naira empowerment to prop up banks and grow the economy with onward low cost loans to the real sector. The intervention funds of well over N3tn in the banking sector include the initial N620bn injected to rescue 10 banks in 2009; additionally, over N600bn was expended by AMCON to recapitalize the three bridge banks in 2011, while about N1.725tn was also spent by AMCON to acquire the non-performing loans of banks.
Nonetheless, CBN management insists that the interventions in the banking sector are loans and not expenditure; besides, according to the Governor, CBN is “empowered by its enabling Act to invest in debentures”, in institutions such as Bank of Industry, where it intervened in sectors such as aviation, agriculture and small and Medium Enterprises. According to the Governor “as long as loans are not expenditure and we are empowered to grant loans, then the legality of our action… is not questionable”.
Furthermore, according to Sanusi, CBN’s spending does not require appropriation since it is provisioned for outside the nation’s consolidated revenue fund, as “its expenditure provisions derive from the proceeds of its investments and loans or printing money, both of which are covered by the CBN Act.” In other words, the funding for CBN’s various CSR interventions are sourced from its profits; nevertheless, the investment portfolios that generate the funding of CBN’s huge CSR interventions may still need clarification!
Sanusi also claims that CBN’s intervention in the rescued banks was defined by “its statutory role as the lender of last resort, in the context of providing liquidity in the system when banks face liquidity challenges in meeting their obligations”; Consequently, “if CBN does not lend money to banks or government, then you don’t need a Central Bank; to lend money is why we exist”.
The preceding may sound economically bizarre in the light of the recent belated recognition by the same CBN Governor that the unyielding pressure of surplus cash in the system induces the aberrant reality of government impulsively borrowing back its own funds from banks at rates of interest between 13 and 14%.
Thus, despite over N2tn cash ‘loans’ for banks’ support, the apex bank simultaneously also inexplicably borrowed trillions of naira of government deposits from the same banks!! The CBN claims that the bailout funds were strictly loans to the banks, but pray, what rates of interest did the banks pay in comparison to the cost of government’s borrowing from those same banks, which also have custody of government’s interest-free deposits?
It would require super-human creativity to make such a business model profitable enough to sustain CBN’s liberal largesse to its beneficiaries, especially when the funds borrowed by the apex bank are simply sequestered (kept idle)to reduce money supply and the threat of inflation rather than a strategic application to any interest-yielding or capacity-building investment.
Evidently, the current balance of over $40bn self titled ‘CBN own reserves’ could never have been accumulated from such an impractical business model; the awkward reality, of course, is that, while CBN’s dollar reserves keep increasing with minimal yield and impact, the government still goes cap in hand (till date) to seek domestic and external loans at oppressive rates of interest. Instructively, the more CBN substitutes naira for dollar revenue in monthly allocations, the higher will be CBN’s reserves, while the burden of surplus naira will similarly increase to instigate the ‘curse’ of high interest rates and government borrowing back its own funds.
Regrettably, however, the CBN has failed to achieve its constitutional mandate for price stability while the banks remain resistant to supporting the real economy. The impacts of bailout packages in the US have since repositioned both the automobile and mortgage subsectors; curiously, however, CBN’s sectoral interventions have failed to produce the desired impact; for example, the N35bn to Air Nigeria may have become money down the drains! Worse still, the CBN continues to borrow back government deposits at double-digit interest rates, even as you read this article.
SAVE THE NAIRA, SAVE NIGERIANS
In view of the apparently ‘boundless’ funds at the disposal of Nigeria’s Central Bank for its independent interventions, observers, including the National Assembly have frowned at the proprietary and the shrouded protocol surrounding the values and the choice of beneficiaries of the apex bank’s bonanza.
The CBN, however, insists that these interventions are in consonance with its enabling Act, and therefore distinguishes its cash gifts as Corporate Social Responsibility (CSR), in furtherance of its primary mandate for “price stability” to drive real economic growth.
The following examples of CBN interventions in some sectors are by no means exhaustive; for example, Bayero University, Kano, has so far collected N1bn out of a projected N4bn donation; the University of Benin similarly got an ‘awoof’ of N500m a few months after Lamido Sanusi received an honourary award from that university. Lately, the media reported CBN’s donation of N10bn for infrastructure capacity and manpower development at Uthman Dan Fodio University, Sokoto.
The Vice Chancellor of University of Lagos, Prof. Rahman Bello, had earlier also confirmed a N10bn project intervention from the CBN! Accordingly, Mr. Kabir Nuhu Koko, CBN Deputy Director for Project and Planning similarly confirmed that the CBN has selected “six secondary schools, six tertiary institutions and six public sector institutions across the nation’s six geopolitical zones for its intervention in 2013".
The criteria for selecting beneficiary institutions from each geopolitical zones are probably only known to CBN. Nonetheless, some observers may be concerned that the establishment of a “project and planning services department in the CBN may also be another wasteful duplication of the existing primed capacity and manpower structures of the Ministry of Education”.
In similar vein, CBN’s donation of N100m to victims of Boko Haram menace in Kano and the apparent afterthought of extending similar financial assistance to victims of the bomb attack at the Catholic Church, Madalla, Niger State, appear to also duplicate the functions of the National Emergency Management Agency.
The value of the above social interventions, however, pale into insignificance in comparison with the trillions of naira empowerment to prop up banks and grow the economy with onward low cost loans to the real sector. The intervention funds of well over N3tn in the banking sector include the initial N620bn injected to rescue 10 banks in 2009; additionally, over N600bn was expended by AMCON to recapitalize the three bridge banks in 2011, while about N1.725tn was also spent by AMCON to acquire the non-performing loans of banks.
Nonetheless, CBN management insists that the interventions in the banking sector are loans and not expenditure; besides, according to the Governor, CBN is “empowered by its enabling Act to invest in debentures”, in institutions such as Bank of Industry, where it intervened in sectors such as aviation, agriculture and small and Medium Enterprises. According to the Governor “as long as loans are not expenditure and we are empowered to grant loans, then the legality of our action… is not questionable”.
Furthermore, according to Sanusi, CBN’s spending does not require appropriation since it is provisioned for outside the nation’s consolidated revenue fund, as “its expenditure provisions derive from the proceeds of its investments and loans or printing money, both of which are covered by the CBN Act.” In other words, the funding for CBN’s various CSR interventions are sourced from its profits; nevertheless, the investment portfolios that generate the funding of CBN’s huge CSR interventions may still need clarification!
Sanusi also claims that CBN’s intervention in the rescued banks was defined by “its statutory role as the lender of last resort, in the context of providing liquidity in the system when banks face liquidity challenges in meeting their obligations”; Consequently, “if CBN does not lend money to banks or government, then you don’t need a Central Bank; to lend money is why we exist”.
The preceding may sound economically bizarre in the light of the recent belated recognition by the same CBN Governor that the unyielding pressure of surplus cash in the system induces the aberrant reality of government impulsively borrowing back its own funds from banks at rates of interest between 13 and 14%.
Thus, despite over N2tn cash ‘loans’ for banks’ support, the apex bank simultaneously also inexplicably borrowed trillions of naira of government deposits from the same banks!! The CBN claims that the bailout funds were strictly loans to the banks, but pray, what rates of interest did the banks pay in comparison to the cost of government’s borrowing from those same banks, which also have custody of government’s interest-free deposits?
It would require super-human creativity to make such a business model profitable enough to sustain CBN’s liberal largesse to its beneficiaries, especially when the funds borrowed by the apex bank are simply sequestered (kept idle)to reduce money supply and the threat of inflation rather than a strategic application to any interest-yielding or capacity-building investment.
Evidently, the current balance of over $40bn self titled ‘CBN own reserves’ could never have been accumulated from such an impractical business model; the awkward reality, of course, is that, while CBN’s dollar reserves keep increasing with minimal yield and impact, the government still goes cap in hand (till date) to seek domestic and external loans at oppressive rates of interest. Instructively, the more CBN substitutes naira for dollar revenue in monthly allocations, the higher will be CBN’s reserves, while the burden of surplus naira will similarly increase to instigate the ‘curse’ of high interest rates and government borrowing back its own funds.
Regrettably, however, the CBN has failed to achieve its constitutional mandate for price stability while the banks remain resistant to supporting the real economy. The impacts of bailout packages in the US have since repositioned both the automobile and mortgage subsectors; curiously, however, CBN’s sectoral interventions have failed to produce the desired impact; for example, the N35bn to Air Nigeria may have become money down the drains! Worse still, the CBN continues to borrow back government deposits at double-digit interest rates, even as you read this article.
SAVE THE NAIRA, SAVE NIGERIANS
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