For over two years, the Monetary Policy Rate (MPR) has been 14 per cent in order to control inflation and stabilise the naira. This is in line with the Central Bank’s single digit inflation rate target of between six and nine per cent, which remains feasible, given last month’s inflation rate of 11.31 per cent. COLLINS NWEZE writes that aside monetary policy decisions, key interventions in agriculture and real sector have led to dip in inflation.
The Central Bank of Nigeria (CBN) seems upbeat on the possibility of the economy returning to single digit inflation rate. The apex bank’s confidence is drawn from the declining inflation rate, which in February, dropped to 11.31 per cent, even at the heat of this year’s elections.
The figure is by far lower than the 17.2 per cent rate in April 2017, based on the National Bureau of Statistics (NBS) data.
This is coming on the heels of CBN’s effective monetary policy that has continuously mopped up excess liquidity in the system.
The Godwin Emefiele-led CBN had embarked on tight monetary policy and introduced measures to boost domestic production as well as ensure that goods that can be produced locally are encouraged to thrive by placing some products under restriction of access to official foreign exchange market.
Inflation, interest and lending rates are the three indicators taken seriously by the CBN. The regulator has never lost sight of the implication a single miscalculation on any of them could cause the people and the economy.
That explains while the CBN-led Monetary Policy Committee (MPC) has kept benchmark interest rate steady at 14 per cent for over two years to curb inflation and support the naira.
Inflation statistics
Nigeria’s inflation rate dropped to 11.31 per cent in February this year from 11.37 per cent recorded in January 2019, the NBS said.
The NBS report for February released in Abuja, said the figure was 0.74 per cent points lower than the rate recorded in January.
According to NBS, increases were recorded in all consumption that yielded the headline index.
The report explained that on a month-on-month basis, the headline index increased by 0.73 per cent in February 2019, this is 0.01 per cent rate lower than the rate recorded in January 2019 (0.74 per cent).
Besides, the percentage change in the average composite CPI for the 12 months period ending February 2019 over the average of the CPI for the previous 12 months period was 11.56 per cent, showing 0.24 per cent point from 11.80 per cent recorded in January 2019.
It said the urban inflation rate increased by 11.59 per cent (year-on-year) in February 2019 from 11.66 per cent recorded in January 2019, while the rural inflation rate increased by 11.05 per cent in February 2019 from 11.11 per cent in January 2019.
This means that the general level of prices of goods and services slowed in the February. Its effects are mostly on the purchasing power, loan repayment and country’s exchange rate through depreciation.
MPC input
The CBN-led Monetary Policy Committee (MPC) did not tamper with the existing policy rates at its last meeting. The committee took measures that will not in any way disrupt foreign capital flows ahead of the 2019 general elections.
The committee also retained the Cash Reserve Requirement (CRR) at 22.5 per cent; Liquidity Ratio at 30 per cent and maintain the foreign exchange policy, which has brought stability and boosted market liquidity.
Managing Director, Afrinvest Limited, Ike Chioke said in emailed note to investors that the MPC kept a delicate balance between growth and price stability, and maintained status quo on all policy rates in order to avoid upsetting the current economic momentum.
He said: “Our position is on a balance of factors underscored by careful analysis of sustained positive conditions in global commodity markets alongside emerging market risks and continued disinflation amid steady growth momentum.”
Chioke said that going by the minutes of the MPC meeting, members continued to keenly watch developments in the global financial and commodity markets, given the connection to Nigeria’s external position.
According to Afrinvest, the stable outlook on oil prices is expected to prop the capacity of the CBN to keep defending the domestic currency with the exchange rate of naira to the greenback stabilising at N305.85/$1.
Dollar, Yuan interventions
The naira has been continuously strengthened by the CBN dollar and Yuan interventions and other policy initiatives, including the introduction of the Investors’ & Exporters’ Forex Window, which has brought a convergence in the market, keeping the naira stable below N362 to the dollar in the parallel market.
The economy has also enjoyed a major forex inflow in recent months with about $60 billion recorded in the I&E FX Window. The I&E Forex Window, also called willing-buyer willing-seller window, allows foreign investors to find buyers for their dollars at a mutually-agreed price.
According to CBN’s Director, Corporate Communications, Isaac Okorafor, the sales in the Chinese Yuan were through a combination of spot and 15-day tenors.
Okorafor said the exercise, in line with CBN guidelines, were for the payment of Renminbi denominated Letters of Credit for agriculture as well as raw materials and machinery.
He identified the bids received from authorised dealers as part of the requests attended to, adding that Renminbi’s availability was sure to ease pressure on the local forex market.
The introduction of the I&E Forex Window was followed by continuous interventions by the CBN to strengthen Deposit Money Banks (DMBs) and the Bureau de Change (BDC) operators to meet forex demand at the retail end of the market.
The naira now exchanges at N362 to dollar at the BDC and parallel market. The official rate for the local currency stood at N305.6 to dollar.
Foreign reserves
The $42.5 billion foreign reserves as at December last year is enough to guarantee 13-month import cover for the country, a report by the apex bank has shown.
The stock of external reserves as at end-December 2018 stood at $42.5 billion, indicating a depletion of 0.03 per cent when compared with the level in the preceding quarter. However, when compared with the corresponding period of 2017, it indicated an accretion of 8.2 per cent.
According to the CBN, the level of external reserves could finance approximately 13 months of imports, compared with 10.3 and 15.6 months of imports cover recorded in the preceding quarter and corresponding period of 2017, respectively. These were however, above the West African Monetary Zone (WAMZ) and global benchmarks of six and three months, respectively.
It said portfolio investments inflow to the economy decreased significantly to $1.38 billion in the fourth quarter of 2018 from $1.79 trillion and $3.78 trillion in the preceding quarter and the corresponding period of 2017. However, other investment liabilities increased to $1.42 trillion when compared with a reversal of $3.07 trillion recorded in the preceding quarter.
Anchor Borrowers’
Programme
In over two years of the implementation of the Anchor Borrowers’ Programme (ABP), a total of N55 billion has been disbursed by the CBN to over 250,000 farmers under the scheme. The ABP was launched in Kebbi State on November 17, 2015 by President Muhammadu Buhari.
It was designed to create economic linkages between farmers and processors, not only to ensure increased agricultural output. The real sector is seen as the backbone of most great economies. This explains why the Central Bank of Nigeria (CBN) has consistently shown support to the sector.
Support for Real
Sector Growth
To unlock the potential of the real sector to engender output growth, value added productivity and job creation, the apex bank recently established a N300 billion Real Sector Support Facility (RSSF).
The facility will support large enterprises for startups and expansion financing needs of N500 million up to a maximum of N10 billion in key sectors of the economy, especially manufacturing, agriculture and services.
According to the CBN Governor, Godwin Emefiele, the real sector targeted by the facility are manufacturing, agricultural value chain and select service sub-sectors.
He said the facility is expected to improve access to Nigerian Small and Medium Enterprises (SMEs) to fast-track the development of the manufacturing, agricultural value chain and services sub-sectors of the economy.
According to him, it is also meant to increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide input for the industrial sector on a sustainable basis.
“The fund is to be managed by the Development Finance Department which shall be responsible for the day-to-day administration of the facility. The activities to be covered under the facility are new, startups and/or expansion projects in the manufacturing, agricultural value chain (non-primary product), services and trading shall not be accommodated under this facility,” the apex bank said.
CRR refunds
The CBN explained that it would refund Cash Reserve Ratio (CRR) to banks that fund projects in agriculture and manufacturing sectors.
It said the CBN has been very supportive to banks, adding that they should lend to companies that are doing new capital expenditures and expansions to factories, using some of their Cash Reserve Ratio (CRR) at nine per cent. These, he added, are not short-term loans, but long-term loans of seven years’, two years’ moratorium on principal.
“It would probably be the first time in the history of this country where manufacturers would be able to take fixed interest rate loans for seven years, which means they would be able to plan. The volatility that they fear for all kinds of risks would be taken out and I think these are very laudable steps in improving and growing the economy,” it said.
