After resolving to retain all key monetary policy indices, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has urged the federal government to settle its domestic debts.
Addressing journalists at the end of the meeting in Abuja Tuesday, the CBN governor Mr. Godwin Emefiele called on the federal government “to urgently assess the extent of its indebtedness to domestic economic agents and develop a framework for securitizing the debts in order to settle its outstanding domestic contractual obligations which cuts across all sectors of the economy.”
Members of the MPC also advised the CBN “to commit to greater surveillance and deployment of early warning systems in managing the banking system.”
Before arriving at the decision to retain interest rate and corresponding indices, Emefiele stated that “available data and forecasts of key economic variables indicate that the outlook for growth and inflation in the medium term continues to be challenging. Growth is expected to remain less robust given the absence of sufficient fiscal space while the current tight stance of monetary policy and improved agricultural harvests are expected to contain further price increases and moderate price expectations.”
The Committee he said assessed the relevant risks to the global and domestic economy and “concluded that the risks to the economy remained highly elevated on two fronts (price and output).”
However, considering the importance of price stability, and being mindful of the limitations of monetary policy in influencing output and employment under conditions of stagflation, the Committee he said “decided unanimously in favour of retaining the current stance of monetary policy, thus keeping the MPR at 14.0 per cent alongside all other policy parameters which include retaining the Cash Reserve Ratio (CRR) at 22.5 per cent; retaining the Liquidity Ratio at 30.00 per cent; and retaining the Asymmetric Window at +200 and -500 basis points around the MPR.
Asked to comment on the allegations that the CBN was planning to jail holders of foreign currency and confiscating the currencies, Emefiele said those allegations are untrue.
According to him, “there is nothing in our forex regulations that says that people will be jailed or that their dollars will be confiscated. But am aware, just today, that the Nigerian Law Reform Commission is looking at reviewing the exchange regulations just like they normally will from time to time.”
The Law Reform Commission he said is an agency of government “that has responsibilities for reviewing all laws in the country from time to time depending on the exigencies of the time. We have not been contacted regarding whether or not some of the clauses that are involved will be reviewed, but am saying here categorically that if we are contacted or whenever it becomes an issue for discussion, we will suggest and advise against the clause that forbids people from keeping their dollars if they choose to or a law that says that people should be jailed for keeping foreign currency.”
On the deployment of security agencies to suspected currency black market locations, the CBN governor stated that “the forex regulation in Nigeria today forbids trafficking in currency on the streets. The security agencies have a right to enforce the laws and as the law says you cannot traffic currency o the streets, you’re supposed to be in your office conducting your business. You will have to adhere to that and if you don’t adhere to that, the security agencies will arrest you. Whether it would drive black marketers underground, they are illegal, we don’t consider people who want to go underground to conduct illegitimate businesses.”
At the meeting earlier, Emefiele said “the MPC believes that the Security agencies should sustain their checks on the activities of illegal foreign exchange operators in order to bring sanity to that segment of the market. The Committee reiterated that the extant foreign exchange regulation outlaws the trafficking of currency on the streets as some unlicensed operators currently do. Thus, to evolve an appropriate naira exchange rate that stabilizes the foreign exchange market, BDC operators must strictly observe the terms and conditions of their license.”
Emefiele also responded to enquiries of a possible reduction in the number of Bureau De Changes (BDCs) saying that “we believe that everybody is entitled ones regulations are set, we don’t need to preclude anybody who meets the conditions, but of course naturally the regulator has a right to put in place policies that limit entry. If we want to limit entry, we know what to do and I can assure you that we will do it at any point we decide to limit entry or even exacerbate exit from the market, that’s something we would look at at the appropriate time.”
The CBN governor was asked to speak on the level of risk Nigerian banks were in currently and he said that “as a result of current challenges being faced by the global economy, all agents in the financial system including banks and other players are facing tremendous risks.”
He added that “normally in any economy where there is a slowdown and recession naturally financial institutions particularly banks will face certain risks risks of NPL rising and different other risks, what that does is that it imposes on the regulators a great challenge to ensure that it strengthens its prudential guidelines to ensure that the banks and particularly depositors are protected.”
Nigerian banks like other banks in other climes he said “are facing risks but those risks are surmountable and the CBN is doing its best to ensure that those risks don’t crystallize to a point where we begin to talk about depositors risking their deposits, so for that reason, the risks is overtly elevated. These are risks being faced by any banking system or any financial system in any clime today arising from the global challenges.”
On efforts to stimulate the economy, Emefiele said “the CBN has from time to time played its role in putting in place measures that are meant to intervene and stimulate the economy. The CBN is involved in various types of interventions in line with the enabling act that asked it to conduct development finance activities to channel funds at low interest rates to benefit the economy and people.”