Ashafa, In spite of turbulence occasioned by the liquidity tightening of the Central Bank of Nigeria (CBN) in the finance sector within the first
quarter of 2014, the year remains one that witnessed many activities in monetary and fiscal policies of government.
The financial sector began the year with the controversial removal of Malam Sanusi Lamido as the governor of the
Central Bank of Nigeria (CBN) in February.
Lamido, now the Emir of Kano, was replaced by a former Managing Director
of Zenith Bank, Mr Godwin Emefiele.
Emefiele assumed office in June, with a pledge to stabilise the naira
and keep interest rates as slow as he met it—at least, till after the
February 2015 general elections.
However, the new CBN helmsman failed to keep the pledge due largely to
falling crude oil prices, which invariably reduced government’s
The effect is that the CBN has increased the interest rate and
followed up with the devaluation of the currency — a
decision taken at a meeting of the Monetary Policy
Committee meeting in November.
The currency was devalued by 8.38 per cent, raising the official exchange rate of the Naira from N155 to N168 to the dollar—a N13 loss.
According to government, these are part of measures aimed at strengthening the nation’s economy.
The CBN also increased the Monetary Policy Rate (MPR) from 12 per cent to 13 per cent, and the Cash Reserve Ratio (CRR) on private sector deposits from 15 per cent to 20 per cent.
The MPR is the rate at which banks borrow from the apex bank to cover their immediate cash shortfalls, while the CRR
is a monetary policy tool used to either call up excess liquidity or release funds needed for growth of the economy– as situation demands.
The pronouncement of the CBN attracted mixed reactions from financial experts, some of who believe that the upward review of the CRR could force banks to reduce their ideal funds, while an increase in MPR automatically increases lending and interest rates.
A former Director, Research Department, CBN, Mr Titus Okurounmu, says the ripple effect of the devaluation will eventually be felt in all
sectors of the economy.
Okurounmu notes that Nigeria as a net importer of consumable products– as opposed to net exporter– would be adversely affected.
He says most of the consumables and non-consumables are imported.
“Therefore, as the naira continues to fall, prices of goods will continue to go up, leading to inflation,’’ he says.
According to him, it is possible that the devaluation will eventually curtail the much sort after foreign direct investment in the country.
Okurounmu adds: “the situation may drive investors to reconsider investing in Nigeria because the devaluation may not generate good
returns on investment’’.
In his reaction, the Head, African Markets at FBN Capital, Mr Olubunmi Ashaolu says the development has made sales in the bi-weekly sales of foreign exchange at the CBN’s Retail Dutch auction System (RDAS) to decline.
Ashaolu admitted that sales went down by 700 million dollar—from 2.99 billion in October, to 2.29 billion dollar in November.
Also, Mr Sewa Wusu, Head, Research and Investment Advisory at Sterling Capital, says the effect of the CBN pronouncement was to curtail excess liquidity by increasing the CRR deposits with the apex bank.
Wusu notes that the development makes it expensive for banks to borrow from the CBN’s standing facility window as the measure may force them to focus more on the interbank market.
He adds that the situation could automatically increase lending rates of banks and consequently discourage investment.
The slump in crude oil price– from a peak of 106 dollars a barrel, to below 65 dollars—and still sliding, has also compelled the continued downward slide in the country’s foreign reserve, which shed an accumulated 17.5 per cent within the year.
According to the latest figures made available by the CBN, the external reserves, which stood at 43.5billion dollar at the beginning
of 2014, dropped to 35.88 billion dollar as at Dec. 9.
Before then, the country was in the limelight after it re-based its Gross Domestic Products (GDP) on April 6, from about 270 billion dollars to 510 billion dollar for 2013.
The increase of about 90 per cent was attributed to the new sectors in the economy– such as telecommunications, movie-making and the retail trades- which were previously not captured or underreported within the financial year.
As a result of the re-basing, the country has become the largest economy in Africa and 26th largest in the world.
According to the Statistician-General, Dr Yemi Kale, this confirms that the country’s economy has grown in total value.
A Financial and Management Consultant, Mr Eghes Eyieyien, commends the exercise, saying it provided useful data for further planning and development of the economy,
Eyieyien, the Chief Executive Officer (CEO), Pharez Ltd., says the exercise has revealed the critical sectors that government should pay closer attention to.
The CBN in collaboration with the Nigeria Inter-Bank Settlement System (NIBSS) on Feb. 14 launched a scheme called Bank Verification Number (BVN).
The scheme, which took effect from Nov. 3, is a follow-up to the advancement on the nation’s payment system to stem fraud and identity
theft, in order to protect customer transactions and enhance confidence in the banking system.
The Managing Director of NIBSS, Mr Ade Shonubi says a phased rollout approach was adopted, beginning with Lagos, for efficient processing.
Shonubi says biometric data capturing machines had already been deployed to not less than 1,000 bank branches in Lagos,
and that to date, over 16,000 BVNs had been issued.
Mr Wale Abe, Executive Secretary of the Financial Market Dealers Association says the increase was as a result of commercial banks
scramble for more funds to meet their obligations.
Abe notes that the recent CBN monetary policy pronouncement and the fall of oil price at the international market had started ‘taking their
toll’ on banking activities.
“Banks are at interbank market to position, to have enough liquidity, following the effect of the CBN monetary pronouncements on the MPR and CRR.
“As soon as there is equilibrium in the market, it will adjust itself because there is the tendency that the situation will reverse after the
general elections, ” Abe says.
The Managing Director, Financial Derivatives Company Ltd., Mr Bismack Rewane also notes that the country would overcome the current challenge — the falling oil prices — adding that in most cases, Nigeria performs better under pressure.
In June, the CBN increased the minimum paid up capital for Bureau de Change operators from N10million to N35million.
It also imposed other rules that include banning of operators from owning more than one bureau de change.
There is no doubt that monetary and fiscal policy framework of 2014 have made the economic direction in 2015 a bit
However, some experts are hopeful that a successful conclusion of the 2015 general elections could usher in a calm
atmosphere that the economy will need to bounce back. (NANFeatures)