There is a surge in demand for dollars, the Central Bank of Nigeria (CBN) said yesterday.
This, according to CBN Governor Sanusi Lamido Sanusi, is linked to political activities ahead of the 2015 elections.
Sanusi spoke after the bank’s twice monthly Monetary Policy Committee (MPC) meeting, which retained the Monetary Policy Rate (MPR) at 12 per cent for the 12th time in a row. The CBN said the naira and inflation had stabilised.
Sanusi said there had been “strong foreign exchange demand pressures, which are not necessarily linked to an increase in the import of goods”.
Elections are scheduled for 2015 and politicians often spend massively on patronage to secure seats or pay off rivals. At least, some of it is acquired illicitly through corruption or links to criminal rackets, like oil theft or kidnapping.
“This non-import-related demand was linked to the build-up of political activities in the country,” Sanusi said, adding that it was leading to a “dollarisation of the economy by the political class.”
“There is something absolutely wrong with bureaux de changes buying hundreds of millions of dollars and not being able to account for them… We think these monies are part of a money laundering exercise and we will have to deal with it,” the governor was quoted as saying by Reuters.
Measures to be announced soon could include imposing restrictions on dollar cash withdrawals, he said.
The bank has come under pressure in the past to cut rates from businesses who say that would stimulate lending. It has resisted, however, arguing that it is only by staying the course, despite such pressure, that the economy has stabilised.
Sanusi said the Monetary Policy Committee voted 11-1 in favour of holding rates where they were. He said the MPC had noted “with satisfaction the stability in the financial system and currency markets”.
He attributed this to a shock tightening at the previous MPC meeting, when the bank slapped a 50 per cent cash reserve requirement on public sector deposits, up from 12 per cent before, in a bid to support the naira.
That was retained, as was a corridor of 200 basis points around the base rate for borrowing or lending from the bank.
He said a stable naira had been “underscored by the policy of intervention to improve supply … and the very tight monetary conditions maintained since the last MPC meeting”.
He also said those conditions had had an impact on inflation, which fell to another five-year low in August.
The naira has been under regular selling pressure from fleeing hot money and strong dollar demand since June, but has gradually recovered due to frequent Central Bank forex sales.
That has not been without its costs. Nigeria’s foreign exchange reserves declined 2.34 percent month-on-month to $45.95 billion by Sept. 20, their lowest in seven and a half months, the latest Central Bank data shows.
Sanusi acknowledged the fall in reserves but reiterated that the bank would resist pressure to devalue the naira, something it last had to do in November 2011.
“I do not see any benefit in devaluing the currency at this point in time. It will not improve our export earnings, it will not reduce imports that are fundamentally inelastic,” like fuel or food, he said. “We will use the reserves. We will not unless we are forced to allow the naira to weaken.”
He said most of the decisions taken at the meeting were informed by developments in the domestic and global economic environments, particularly to the need to sustain macroeconomic stability in the economy.
In the course of the MPC meeting, “the Committee noted the continued dependence of the banking sector on monetised oil revenues for its liquidity and stressed the need to keep pushing banks into altering their business model to reduce vulnerability”.
Sanusi restated the CBN’s commitment to ensure exchange rate stability by adopting appropriate monetary policies that will protect the currency from the forex market manipulations but that he cautioned that “this agenda would not be pursued at all cost”.
He explained: “If we need to tighten money and use some of our reserves to support the economy, we will; no CBN Governor will say he will support currency at all cost. But we want to be very clear that there is no country that allows its currency to just be determined by market. We are not looking for a stronger currency, neither are we looking at a weaker one. People want to pay fees and investors want to know that they will have returns for their investments. We will use reserves, we will use interest rates, we have gone through the difficult months; hopefully the next few months will not be difficult. We will not allow the naira to be weakened and we are committed to that.”
The CBN governor was also asked to shed light on the health of Duscount Houses in Nigeria and he responded by saying that the Bank has already taken steps to investigate the operations of Discount Houses, with exception of Express Discount House which had its licence revoked recently, Kakawa and Associated Discount Houses were sound. So, there is no cause for worry with the Discount Houses.
Sanusi said: “There are no major issues with discount houses. We have taken a comprehensive view, we revoked the licence of Express and we have seen that the other two are in good form. We discovered in the case of Express Discount House; there appeared to be a case of fraud. We have examiners in there to determine the extent of fraud and will pay all unsecured depositors in the course of this week. No depositor will lose money and we will come out with appropriate statements soon.”
He said the apex bank would curb the exercise of bureau de change operators who engage in foreign exchange abuses.
