The Central Bank of Nigeria (CBN) has revealed that it is still expecting N2.56 trillion out of the N2.73 trillion outside banks’ vaults as the January 31 deadline for depositing old notes nears.
As at the end of September, N3.23 trillion was in circulation but N2.73 trillion (85 percent) was outside the vaults of commercial banks and only N165 billion has been returned to the banks, according to the CBN.
“Out of the N3.2 trillion currently in circulation, as at November 18, only N165 billion has been received which is small; especially as a lot of concessions have been made to ease the deposits,” Ahmed Bello Umar, director, currency operations at the CBN, told journalists in Abuja on Wednesday.
He said the bank had hoped that 80 percent of the total money in circulation would be returned to the banks or at least 40 percent or on the average 60 percent of it would be returned.
“From the deposit we have received now, 95 percent is in N1000 and N500 denominations averaging N86 billion and N51 billion respectively while N200 is N7 billion,” he said.
He said the new notes, unveiled on Wednesday, will be distributed across the CBN networks starting from Thursday (today) to reduce possible challenges when it is time for them to be launched.
Umar said the law provides that the naira redesign should have three months’ notice, which was adhered to, adding that the January 31 deadline will not be reviewed.
He said to combat hoarding of the new currency, the circulation of higher denominations will reduce.
“We want to drive cashless policy and reduce the cost of currency management because we have to carry this money across the 37 branches we have,” he said.
Blaise Ijebor, director, risk management at CBN, said other than the problem of hoarding, there is a lot of risk associated with having a lot of cash outside the banking system.
“We are going to be putting out the new naira in smaller quantum, so that people will use the other mediums of payment,” he said.
Hassan Mahmud, director, Monetary Policy Department at CBN, said inflation is still elevated and is expected to remain a major issue driven by the Russia-Ukraine war, climatic conditions and floods, among other issues.
He said the Monetary Policy Committee (MPC) remains committed to taming inflation through various measures including tightening the monetary policy rate (MPR).
He explained that the MPC pegged the tightening to 100 basis points on Tuesday because they are aware that it is impacting on growth and businesses through higher cost, adding that tightening the MPR should have been an option explored earlier and at a larger quantum but it has implications hence the need to be strategic.
“We know that the market is tight and banks are crying, this MPR increase is a tool for moderation but we have not reached the end of the tunnel yet, we need to go gradually and allow the economy some breathing space to recoup from the tightening,” he said.
Mahmud added that although it is tough for manufacturers but there must be trade-offs, which will have stabilisers to cushion the effects which is why the CBN is still retaining some of its single credit lines created as interventions in agric and manufacturing, to the tune of over N9 trillion.
Speaking on when the interest rate hike will be stopped, he said when inflation numbers begin to drop to as low as 15 percent, narrowing down to 12 percent, and economic growth improves while supply matches aggregate demand.
He however noted that the economy does not have enough buffers against shocks which will push for gaps to be narrowed over a short period of time.
Speaking on the FX scarcity, he said the bank wants to have a positive exchange rate regime however demand and supply factors are pushbacks, adding that the supply side is narrowing significantly.
“Inflows from NNPC, inflows from non-oil export are all trickling down largely due to external factors and without the inflows, CBN does not have the power machine to keep defending the naira,” Mahmud said.
He however noted that the CBN is also doing a lot to boost the supply side through measures like the RT200, which contributed above $1 billion to the Investors and Exporters Window in the third quarter of 2022.