Central Bank of Nigeria governor, Godwin Emefiele yesterday ruled out another possible devaluation of the local currency- at least in the near future- as he told the market that the naira is ‘appropriately’ priced at this time.
The governor said this against the backdrop of recent analysts’ predictions that the naira which has received bashing as foreign reserves continue to deplete could be devalued further.
“We are not considering the idea of devaluing the local currency, even though it is subject to review as the need arises.
“But at this time, the naira is appropriately priced and there is no need for anybody to worry that there will be devaluation,” Emefiele said, as he announced the Monetary Policy Committee (MPC) decisions to leave key rates unchanged in line with analysts’ wide expectations.
Emefiele signaled that the Nigerian authorities would be engaging the JP Morgan index team in an effort to remain on the Emerging markets bond index, despite recent negative watch placed on them.
“We will be engaging the JP Morgan index team to provide the numbers to prove the level of liquidity in the system”, the governor said, sounding quite optimistic that they would be convinced, as he tried to straighten out facts surrounding this issue.
“Nigeria is committed to remaining on the index because of the gains therein and especially the adverse impact that exclusion form the index will cost the country,” the governor stated, warning, “We will provide the needed forex for legitimate transactions but we will not tolerate speculative attack on the currency.”
All eleven members of the Monetary Policy Committee (MPC) who ended their meeting on Tuesday voted to retain the MPR at 13 per cent; retain the CRR on Private Sector deposits at 20 per cent; retain CRR on Public Sector deposits at 75 per cent; and retain the liquidity ratio at 30 per cent.
One member however voted for an asymmetric corridor around the MPR.
Emefiele said that their assessment since the last devaluation in November remains positive and that the ‘wait and see’ game is to allow the decisions taken at the last MPC meeting in November to crystalise in the economy.
Although the CBN appears satisfied with the growth performance of the economy, as well as the year-end inflation outcome, it is concerned about a number of risks- the security challenge in parts of the country, which have continued to disrupt farming and related activities; and the sustained decline in oil GDP.
Another concern is the recurring challenge of excess liquidity in the banking system and the possible complications arising from capital flow reversal, as well as the demand pressure in the foreign exchange market which were all seen as threats to inflation that has remained in single digit in the past 24 months.
On the external front, falling oil prices, slowing global output recovery, divergent monetary policy postures between the US and Euro Area, as well as non-inclusive growth, remain very important risks, Emefiele noted.
As he addressed the media on the outcome of the MPC meeting, Emefiele also used the opportunity to clear JP Morgan’s position to place Nigeria on a negative watch for the next three to five months based on their assertion that the exchange as well as the local bond market is illiquid.
Emefiele said he had earlier disagreed with JP Morgan’s position that the Nigerian bond market is illquid.
He explained that reviewing the Net Open Position of banks from 1 to zero, did not mean that there was no trading. According to him, the authorities only insisted that banks must close their positions to zero because of the volatility seen in exchange rate market at the time.
He said there were also other uncomfortable tendencies in the market which showed that there was some speculative attack on the local currency.
“That was the reason for that decision and we were very clear that the NOP was being reviewed at that time and in the interim.
“We were monitoring the market such that when business resumed this month, and after some review of development in the market between December 17 and January 12 when NOP was zero, the committee met and decided that it should be reviewed from zero to 0.1 percent.
Emefiele stated that the NOP is not cast in stone, and that the CBN will continue to review the position either way, as the need arises, maintaining the apex bank’s commitment to the responsibility of defending the currency and exchange rate of the naira.
“We have also made it clear that we are monitoring the market to the extent that we feel that the interbank market will continue to support legitimate trading activities in the economy.”
On the widening gap between the RDAS and the parallel market, Emefiele said that the CBN is aware and working on the possible strategies of bridging the gap to check arbitrage and rising exchange, and that at the appropriate time, the right actions will be taken by the committee of governors.