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Tag: MPC

  • ‘Naira slide could trigger emergency MPC meeting’

    ‘Naira slide could trigger emergency MPC meeting’

    The naira which has come under undue pressure in recent months over the sharp fall in Brent oil prices, may cause the Monetary Policy Committee (MPC) to convene an emergency meeting, analysts have predicted.

    Currencies Analyst at Ecobank Nigeria, Olakunle Ezun, said should the naira weaken in the interbank market to N170 or more, and oil prices drop below $80 per barrel, an emergency MPC meeting could raise the Monitory Policy Rate by 50 to 100 basis points and increase the Cash Reserve Ratio (CRR).

    This, he said, would undermine the naira, given that hydrocarbons account for 98 per cent of export revenues and around 75 per cent of fiscal revenues.

    Ezun explained that without a large cushion of foreign exchange reserves, the CBN, would remain under pressure from the fall in oil prices to tighten policy as a means of underpinning the naira.

    “Yields on government securities rose steadily around 100 to 150 basis points since early October. It is clear that a tightening cycle is developing, with a strong possibility of further direct tightening,” he said.

    The analyst explained that the Monetary Policy Rate (MPR), the benchmark lending rate for banks, could remain above 12 per cent for the weeks ahead, with the possibility of indirect tightening at the next MPC meeting.

    “CBN would likely decide to tighten policy in its next meeting. Although a rise in the MPR is currently unlikely, tightening could be made by raising the Cash Reserve Requirement (CRR) on private sector deposits. Currently it stands at 15 per cent (it was last raised from 12 per cent in March),” he said.

    He explained that another risk facing the CBN is the possibility of increased government spending in the run-up to the February 2015 election.

    “Any injection of liquidity above target would undermine macroeconomic stability by pushing inflation up above the most recent level of 8.3 per cent in September (inflation has been largely stable around this level for more than one year. The CBN considers the inflation outlook is good with single digit inflation likely by yearend,” he predicted.

    He said the tight monetary policy stance was adopted in order to ensure exchange rate stability (given the managed float exchange rate regime), and help contain inflationary pressures. Indirectly, the tight policy has helped underpin real returns on fixed income securities investments by attracting foreign investors into naira denominated assets, thereby helping strengthen demand for the naira.

    However, demand for Federal Government bonds issued across all maturities remains strong. Increased supply of securities would help temper some of the high levels of oversubscription, however, demand remains strong despite uncertainties related to inflation, exchange rate risk, and the macroeconomic policy environment.

    The authorities, he said, have continued to stimulate interest via liquidity management and indirect monetary tightening to boost confidence in the market and at the same time provide forward guidance on monetary policy directions, which has helped realign the yield curve with monetary policy expectations.

    Meanwhile, the CBN has pledged to keep supporting its currency after the naira approached a record low amid declining oil prices and the end of US monetary stimulus that bolstered emerging-market assets.

    “We will continue to defend the naira,” CBN Deputy Governor, Economic Policy, Dr. Sarah Alade said. Since mid-September, the CBN has used the reserves to sell dollars outside of regular auctions held Mondays and Wednesdays, according to Standard Chartered Plc.

    It will keep using the auctions and direct dollar sales to banks to preserve the value of the currency, Alade said. The currency strengthened 0.2 per cent to 164.90 per dollar. It earlier weakened as much as 0.8 per cent to 166.42, a record low on a closing basis.

  • CBN may keep 12% interest rate as MPC meets tomorrow

    CBN may keep 12% interest rate as MPC meets tomorrow

    The Central Bank of Nigeria CBN) is expected to keep the interest rate unchanged at 12 per cent as the Monetary Policy Committee (MPC) meets tomorrow and next.

    If the MPC keeps the rate unchanged, it will be the 18th time in a row, it is taking such stance in an effort to control inflation and support the naira.

    This week’s MPC meeting will be the second chaired by the new CBN Governor, Godwin Emefiele, and will be closely watched by foreign investors and analysts.

    The former managing director of Zenith Bank, struck a dovish tone on rates two days after taking office in June, saying he would seek a gradual reduction in borrowing costs, which have been stuck at 12 per cent since late 2011.

    That is much higher than the 5.75 per cent in South Africa, which Nigeria overtook to become Africa’s largest economy earlier this year, and 8.50 per cent in Kenya.

    Inflation  rose to a 10-month high of 8.5 per cent in August, closer to the CBN’s upper limit of nine per cent, after rising for five straight months this year on higher food prices and excess liquidity.

    “Higher risk premiums and fiscal profligacy related to the election will keep pressure on the currency and price growth and Emefiele and his team will not want to exacerbate that by loosening policy too aggressively,” said Matthew Searle, sub-Saharan Africa Analyst at Business Monitor International.

    Also, an Economist at Vetiva Capital, Adedayo Idowu, said with the compression in fixed-income yields, as short-tenor maturities head south below the 10 per cent levels, the risks of negative real rates on Nigerian assets will again resurface.

    Meanwhile analysts at Renaissance Capital (RenCap), an investment and research firm,  have pre-dicted interest rate cuts by December next year to allow credit growth and boost real sector production.

    Global Chief Economist at RenCap Charles Robertson said in the “Sub Saharan Africa Macro Strategy” released on Monday,  that such step would allow interest rate move from high single digit, to mid-teens.

    “Post-elections, we expect interest rate cuts in the second-half of 2015, which we think will allow year-on-year credit growth to pick up from current high single-digits to the mid-teens. This is positive for equities and the banks.

    “Equally, it should give a lift to the consumer, as the effect of any pre-election wage hikes dissipates. We believe expansionary fiscal policy in 2015 is unlikely, due to capacity constraints and a desire to keep debt levels low,” he said.

    He said the 2015 elections, though very near, should not distract investors. “Yes, elections are almost upon us in February, 2015, but we do not think that should detract from Nigeria’s otherwise solid macro credentials – especially given our view that the electoral process and outcome will be relatively stable,” he said.

    Robertson explained that Nigeria is well ahead of the other countries under its coverage, given its improving external reserves position  which cover nine to 10 months imports,  and a small fiscal deficit of one to  two per cent of GDP.

    He said a recovery in the oil sector has led to stronger growth, which has been upwardly revised to 6.3 per cent and 6.5 per cent in 2014  and 2015, against prior forecasts of 5.7 per cent and 5.6 per cent.

    He said: “We prefer Nigerian banks to Kenyan banks on a valuation basis. Admittedly, the operating environment in Nigeria is tougher against other key Sub-Saharan Africa markets and this has led to a lower sector-wide Return on Equity.

    “The good news is, we see a recovery from December 2015, when we expect Nigeria’s monetary policy to ease, which is banks-positive.”

  • Foreign reserves to hit $41b by month-end

    Foreign reserves to hit $41b by month-end

    Foreign exchange reserve which stood at $39.4 billion in August 7 is expected to hit $41 billion by the end of this month, Managing Director, Financial Derivatives Company (FDC) Limited, Bismarck Rewane has said.

    In the FDC Breakfast Meeting at the Lagos Business School, he said the slow replenishment of the reserves will continue until they reach $41 billion by month-end. Analyses of the reserves based on data from the Central Bank of Nigeria showed that the reserves have risen by over $2.2 billion in the last six weeks. The reserves which were at $37.2 billion on June 24 rose to $3.84 billion on July 17.

    Rewane said average oil prices of Nigerian crude remained above $104 per barrel while the positive impact on oil revenue will be felt in October. US import of Nigerian crude is down to less than two per cent, of total Nigerian exports, compared to seven per cent in 2011. Dwindling Nigerian shipments to the U.S. imply that disruptions to Nigeria’s oil supplies are unlikely to trigger oil price rallies. Nigeria imports about 50 per cent of its refined products from the US.

    He said oil revenues forecast in second quarter is $12 billion as against first quarter revenue of approximately $11 billion adding that accruals from oil form major part of the reserves. The reserves will cover 8.2 months of import cover

    Analyzing financial sector credit, he said the average opening credit position of the banking system was N358.75 billion in July, about 0.66 per cent lower than June figure. Inflation crept up by 0.2 per cent to 8.2 per cent, the fourth consecutive monthly increase.

    He said the Monetary Policy Committee (MPC) left the monetary policy instruments and stance unchanged in July even as the naira appreciated at the interbank market to N161.85/ dollar but depreciated at the parallel market to N168/ dollar.

    Also, banking earnings were flat and lower than first quarter because of the cumulative impact of the Cash Reserve Ratio (CRR) hike. Also, average corporate earnings for lenders declined by 1.53 per cent in second quarter and stock prices decreased by 3.16 per cent year-to-date.

  • Reserve depeletion worries CBN

    Reserve depeletion worries CBN

    The Central Bank of Nigeria (CBN) has warned that continued depletion of the Excess Crude Account (ECA) and the Foreign Reserve will leave politicians with no money to prosecute their electoral agenda.

    Addressing reporters at the end of the Monetary Policy Committee (MPC) in Abuja yesterday, CBN Governor Sanusi Lamido Sanusi noted that as elections approach in 2015, “one of the good things about not having a lot of money in the Excess Crude Account is that there isn’t enough ammunition to spend even if you want to spend”.

    This, he said (sarcastically), is good from a monetary policy perspective “but there isn’t too much fiscal fire power available to spend and that is helpful”.

    But Sanusi advised against further depletion of both the ECA and Foreign Reserve stressing that “if we continue having a reversal in inflow and pressure on exchange rate and we don’t have our savings, then ultimately even our (CBN) commitment to exchange rate stability cannot be effective”.

    On the depletion of fiscal buffers (ECA and Foreign Reserve), Sanusi “decried the continuous fall in revenue from oil despite stable price of oil and production in 2013.”

    Sanusi said: “It is a fiscal issue, not a monetary issue. We all have to face the reality. We had about $11 billion in Excess Crude Savings at the beginning of 2013 and we had less than $2.5 billion at the end of 2013. I suppose there are ongoing discussions with the Minister of Finance to review some of the reasons for that.”

    Though the committee acknowledged output losses due to theft and vandalism, this the MPC said “could not wholly explain the magnitude of the shortfall in revenue.”

    “As a consequence, accretion to external reserves remained low while much of the pervious savings have been depleted, thereby undermining the ability of the Central Bank to sustain exchange rate stability.”

    The MPC, therefore, urged the fiscal authorities to block revenue leakages and rebuild fiscal savings needed to sustain confidence and preserve the value of the naira.

    Giving details of the extent if depletion of the ECA and the external reserve, Sanusi stated that “gross external reserves as at December 31, 2013 stood at US$42.85 billion, representing a decrease of US$0.98 billion or 2.23 per cent, compared with US$43.83 billion at end – December 2012. The committee noted that the decrease in the reserves level resulted largely from a slowdown in portfolio and FDI flows in Q4 2013 resulting in increased funding of the foreign exchange market by the CBN to stabilise the currency.”

    The committee again expressed concern over the continued depletion of the excess Crude Account (ECA) which balance stood at less than US$2.5 billion on January 17, 2014, compared with about US$11.5 billion in December 2012. This absence of fiscal buffers, Sanusi said, “increased our reliance on portfolio flows thus, constituting the principle risk to exchange rate stability, especially with uncertainties around capital flows and oil price”.

    As the inflow begins to slow down, the government, Sanusi noted, needs “to be able to retain our own revenue. We need to be able to stop the theft, stop the vandalism, stop the leakages and basically save our own money in order to build up reserves because oil prices are at an average of $110 and the gap between 2012 and 2013 was less than $2.”

    The CBN governor lamented that “there was absolutely no reason why oil revenue should have collapsed from $8 billion to less than $2.5 billion in one year. So they need to tighten their (fiscal authorities) control. They need to check where the money is going. If we can do that, it is within our control that is really the biggest irony here. This is not the case of the crisis we faced between 2008 and 2009; this is really an internal thing. It is theft in the Niger Delta, it is leakages in resources; they are all issues within our control as a country. It is a good place to be, where you can actually take charge of the situation. So it should be top on the fiscal priority.”

    As for tightening, the Central Bank, Sanusi said “should continue tightening for as long as the challenges require. If the foreign reserves accretion improves, governance improves, that would be easier for us to continue to maintain stability.”

    He was concerned when he said “if we don’t have our own savings and we have to rely on trading portfolio inflow, it could happen in my tenure, it could be after; this is January, we will see what happens in March and in May, if we need to tighten we will and if we need to remain where we are we will remain. It is not just very likely that we are going to see any kind of accommodation in the year before an election.”

    On the monetary side, at the end of MPC meeting, all members voted for an increase in CRR on public sector deposits from 50 per cent to 75 per cent with effect from February 4, 2014.

    It was also decided that MPR should remain at 12 per cent +/-200 basis points and liquidity ratio (LR) at 30 per cent; Private sector CRR was retained at 12 per cent and the CBN was advised to take immediate steps to redress the supply- demand imbalance in the BDC segment while maintaing its focus on anti-money laundering (AML) activities.

    With regards to foreign exchange developments in the economy, Sanusi stated that “the end-period exchange rate remained stable at the w/rDAS and interbank segments but depreciated significantly at the BDC segment. The exchange rate at the w/rDAS-SPT in 2013 opened at N157.33/US$ (including 1 per cent commission) and closed at N157.26/US$, representing an appreciation of N0.07k or 0.04 per cent. The inter-bank selling rate opened at N156.25/US$ and closed at N159.90/US$, representing a depreciation of N3.65k or 2.34 per cent for the period. However, at the BDC segment of the foreign exchange market,the selling rate opened at N159.50/US$ and closed at N172.00/US$, representing a depreciation of N12.50k or 7.84 per cent.”

    Giving these developments, Sanusi said, “it is clear that the RDAS is not a window for politicians to buy dollars. About the issue of politicians, I have very high regards for them, I will not make any comment about that.”

    The Committee’s considerations were that the MPC welcomed the sustained stability of the exchange rate and single digit inflation in 2013. It however, identified four key concerns for policy in the short-to medium-term these include: depletion of fiscal buffers following the continuing decline in oil revenue, rundown of reserves and depletion excess crude oil savings; falling portfolio and FDI inflows; widening gap between the official and the BDC exchange rates; and Creeping increase in core inflation.

    The MPC also noted the reduction in portfolio inflows driven by the commencement of the Quantitative Easing (QE3) tapering by the Fed, transition concerns at the CBN and continued depletion of the ECA, thus dampening investor confidence.

    The reduction of the US stimulus, especially, could in addition, trigger capital flow reversals and put greater pressure on the naira exchange rate. The committee then expressed concern about the widening gap between the official and the BDC exchange rates,noting that this could precipitate speculation and round-tripping. “Though, the BDC’s represent a small component of the foreign exchange market,the widening spread appeared to have fed into creeping increases in core inflation” Sanusi said.

    The committee re-affirmed it’s commitment to a stable exchange rate regime while urging the fiscal authority to provide support by reducing fiscal leakages, improving controls around oil revenues and reviewing terms around production sharing agreements with oil companies,while awaiting the passage of the Petroleum Industry Bill (PIB).

     

  • ‘CBN targets single digit inflation in 2014’

    ‘CBN targets single digit inflation in 2014’

    The thrust of the Central Bank of Nigeria’s (CBN’s) monetary policy in retaining the Monetary Policy Rate (MPR) and Cash Reserve Ratio (CRR) 12 per cent is to achieve a lower rate of inflation on a more sustained basis, Head of Research Africa, Standard Chartered Bank, Razia Khan, has said.

    In an emailed report obtained by The Nation, she said there was a suggestion that the CBN will not rest on what it has already achieved as it concerns inflation, adding that merely getting to a single digit inflation is not good enough, she argued.

    “Although not a hard inflation target in the strict sense of the term, this does send a clear signal to markets to continue to anticipate a tightening bias to policy, especially if pressures increase,” she said, adding that the outcome of the last Monetary Policy Committee (MPC) meeting was largely as anticipated, with the MPR and CRR on public sector deposits, and the CRR on private sector deposits all kept on hold.

    However, the analyst said there was a distinct hawkish tone to the commentary, as a means perhaps of preparing the market for further tightening next year, with the talk of six-nine per cent inflation rate throughout 2014,

    “The CBN is not complacent on the inflation outlook. While everyone has been looking at the deceleration in headline inflation in October, the CBN rightly points out the pressures on core inflation in fact, both the year to year and month to month October headline print were slightly higher than we had anticipated, notwithstanding the best headline inflation data in Nigeria since March 2008,” she said.

     

  • Why MPC is tightening monetary policy

    The need to counter the negative impact of fiscal slippage, oil theft and pressure on the naira exchange rate has prompted the Central Bank of Nigeria (CBN)-led Monetary Policy Committee (MPC) to tighten its monetary policy stance, FBN Capital has said.

    The investment and research firm said in an emailed report that the MPC meeting of September 24 left its monetary policy rate (MPR) and cash reserve requirement (CRR) for banks unchanged at 12 per cent. It also retained the CRR for public sector deposits at 50 per cent.

    The CBN, which provides the majority of members on the committee, has also announced administrative measures to plug some foreign exchange leakages to save the naira.

    The research firm said 11 of the 12 members voted for no-change in the policy rate of 12 per cent, adding that the dissenter, who voted for a 50 basis points reduction, argued that monetary policy should enhance growth and development.

    He said blockages in the transmission mechanism are no excuse for inaction adding that in Nigeria’s case therefore, the CBN has to do more “administratively” to encourage bank lending to the real economy, and to reduce high interest rate margins.

    One member noted that crude oil output was just 1.85 mbpd in July and 1.88 mbpd in August.

    Another noted that production over the last four months of the year would have to average an implausible 3.67 mbpd to compensate for the shortfall of the first eight months against the 2013 budget assumption of 2.53 mbpd. The National Bureau of Statistics (NBS) forecasts growth of 6.9 per cent and 7.7 per cent year-on-year for third quarter and fourth quarter respectively. However, members had their reservations, given the oil losses and the security problems in the north east. The slowdown in distribution sector growth could also reflect pressures on consumer demand.

    “The share of foreign currency deposits in total deposits increased from 16.2 per cent in June to 21.3 per cent in August. Explanations include preparations for the elections in 2015 and money laundering,” they said.

    The most pronounced theme in the statements was the vindication of previous policy, evident from the fact that the naira has avoided the marked sell-off suffered by most emerging and frontier market currencies.

    The Committee considered the developments in money market rates which rose astronomically to peak at 40 per cent on 18th September 2013.

    However, these developments were temporary, arising from the postponement/stalemate in sharing the monthly Federation Account Allocation Committee Revenues. Banks which participated in the Wholesale Dutch Auction System (WDAS) widow expressed a preference for paying high interbank rate for one day rather than their borrowing from the CBN at 14 per cent and being barred from the WDAS window.

    It also observed 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.

  • CRR review: Banks to confront CBN at Bankers’ meeting

    CRR review: Banks to confront CBN at Bankers’ meeting

    •We’re open to dialogue, says apex bank

    Chief executives of banks are set to confront the Central Bank of Nigeria (CBN) next month at the Bankers’Committee meeting over the recent 50 per cent cash reserve requirement (CRR) on public sector deposits.

    The bank chiefs, who spoke to The Nation on Monday, said the new policy would tighten liquidity, slow down credits, increase interest rates and the delinquency of loan defaults.

    But the CBN Deputy Governor in charge of Operations, Mr Tunde Lemo, punctured most of these augments, saying that the banking watchdog was ready for dialogue with the bank chiefs.

    The Monetary Policy Committee (MPC) had stunned the financial markets with a public sector deposit reserve requirement. While the status quo on the key monetary policy instruments was maintained at 12 per cent, the MPC introduced a 50 per cent cash reserve requirement on all public sector deposits but left those of the private sector unchanged.

    CRR is the portion expressed as a percentage of bank’s deposit balances, which banks must have as reserve, in cash, with the CBN. The percentage is usually determined by the Central Bank. The reserve ratio is one of the instruments used to influence the money supply in a country and drain out or add up excessive money from the system.

    If the Central Bank increases the percentage, the available money for the banks to lend and make other transactions will reduce and vice versa.

    Justifying its perceived excess liquidity in the economy, the apex bank, which put the total public sector funds with banks at over N1.3trillion, said 50 per cent the CRR requirement on all public sector deposits, which is expected to implemented on August 7, would mop up N650billion from the system.

    Speaking with the newspaper on this development, the bank chiefs, who opted not to have their names in print, said there is no excess liquidity in the system. They said that what they have on their balance sheets are ‘sterilised Asset Management Corporation of Nigeria (AMCON) N3trillion bonds’, which they cannot convert to cash.

    AMCON had purchased the bad loans of banks and gave them bonds, which counts as the lenders’ liquid assets.

    The bank chiefs said: “The CBN believes that there is excess liquidity but this is not true. The average bank has about 70 per cent liquidity ratio but after you remove AMCON bonds, banks are left with just 35 per cent liquidity.

    “Don’t forget that as banks get government deposits, the CBN mops it up at OMO. CBN cannot just move the CRR from 12 per cent to 50 per cent. It should have been a gradual process because the CBN is not paying any interest on these deposits.

    “The equities market will be impacted. This is already happening. People will be compelled to divest from the capital market and this would cause equity bubble.”.

    But Lemo insisted that these arguments do not hold because 50 per cent CRR is applicable to only the government’s deposits. He also said banks were free to hand over their AMCON bonds to the CBN in exchange for cash when the need arises.

    He said: “Liquidity cannot be tight because the stipulated liquidity ratio is 30 per cent and the average in the industry 68 per cent. So, the excess liquidity should have gone into credits by now. Most of the banks are seating on excess liquidity.

    “In fact, they collect these monies from the government and purchase treasury bills with and lend back to the government. The implication is that the government is spending undue percentage of their revenue to pay for their deposits with bank.

    “Once the government deposits are refunded, the government will have more money to pump into infrastructural development. The bank chiefs don’t have to wait for the Bankers’ Committee meeting, we (the CBN) are open to dialogue because we recognise the intermediation roles banks play in the economy.”

    Analysts had also commented that the new policy would have a negative effect on banks.

    An analyst with Renaissance Capital, an investment bank, Adesoji Solanke, said though it signals the desire to tighten monetary policy, the policy measure adds to the headwinds affecting the Nigerian banking sector this year and is on balance, negative for the sector.

    “We view the impact of this as negative for the banks. This is a new measure in addition to the 12 per cent CRR on all deposits, which we believe signals tightening of monetary policy, most likely to protect the naira,” he said.

  • Investors worry over CRR impact on banks’ profits

    Investment advisers and fund managers might reconsider their banking stocks portfolios in the light of last week’s decision that increased cash reserve ratio (CRR) for public sector deposits in banks to 50 per cent.

    Market analysts said the decision by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will continue to have ripple effects on market considerations of banking stocks at the stock market.

    The MPC last week increased the CRR for all public sector deposits from 12 per cent to 50 per cent, citing the need to manage the liquidity in the system in a more cost effective manner. The apex bank stated that the new CRR will be applied on Federal, State and Local Government deposits and all Ministries, Departments and Agencies (MDAs) of government. It however, retained CRR of 12 per cent for non-public sector deposits. Besides, it left unchanged the Monetary Policy Rate (MPR) at 12 per cent with the symmetric corridor of +/-200 basis points around the MPR.

    The implementation of the new CRR for the public sector will take effect from the next CRR maintenance period commencing on August 7, 2013. In a letter to all banks dated July 25, 2013, the apex bank stated that it would discontinue the remuneration on “excess” above the CRR of 8.0 per cent.

    Investment analysts said the 50 per cent CRR could undermine banks’ earnings given the large size of public sector funds.

    Investment advisers at Analysts at Morgan Capital Group said they have placed a hold on all banks under their coverage pending further analyses to determine the extent of impact on banks’ returns.

    According to analysts, it is expected that the new policy will have material impact on the bank’s earnings since most of the top banks have exposure to public sector funds.

    “The reluctance of banks to be more aggressive with loan book growth, which commands higher interest margins and would have been a buffer to mitigate some of the expected revenue losses the new policy would have on the banks income will also be heightened. Also material is the exposure of banks to Government bonds and how much of this public sector funds have been committed to these bonds, particularly as bond yields are going up, which means bond prices are crashing and banks are expected to mark their exposure to market as at December 31, 2013 and any other reporting dates,” Morgan Capital stated.

    Analysts however, said the reaction of the management of each bank will determine the extent of impact of the new CRR on the bank, noting that management with the swiftest and efficient reaction to the policy that will emerge the winner.

    Investment advisers at FSDH Merchant Bank said while they have not been able to ascertain the actual amount of the public sector deposits in the market in order to accurately gauge the impact of the policy on the liquidity in the market; it was safe to assume that public sector funds were large enough to determine market direction.

    “We think the public sector fund is large, as market liquidity and inter-bank rates swing in line with the injections and withdrawals of public sector funds. We expect inter-bank rates and yields on treasury bills to rise immediately the debit hits the system. Banks may also adjust their lending rates upward in line with the realities, while they intensify their efforts in mobilising non-public sector fund,” FSDH stated.

    Analysts underscored that need for banks to continue to grow the risk assets in order to ensure adequate returns on capital employed.

  • CBN retains 12% interest rate

    CBN retains 12% interest rate

    The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has once again decided to maintain the current policy stance, by retaining the Monetary Policy Rate (MPR) at 12 per cent with a corridor of +/- 200 basis points around the midpoint.

    Addressing reporters in Abuja yesterday at the end of the its meeting, the Governor of the CBN, Sanusi Lamido Sanusi, said the committee also decided to retain the Cash Reserve Ratio (CRR) at 12.0 per cent and the Liquidity Ratio at 30 per cent.

    He explained that the Committee was faced with three choices: namely increase in rates in response to the up tick in headline and food inflation; a reduction in rates in view of declining core inflation and Gross Domestic Growth (GDP), and retaining current monetary policy stance in view of conflicting price signals and global uncertainties.

    He said: “The Committee considered and rejected option one, as being potentially pro-cyclical considering the structural nature of recent inflationary pressures. While acknowledging the merit of the arguments in favour of option two. It was also rejected as likely to send wrong signals of a premature termination of an appropriately tight monetary stance.”

    The Committee resolved to retain the MPR which determines the rate at which banks lend to their customers, he added.

    The Committee decried the conflicting price signals coming from the latest inflation numbers from the National Bureau of Statistics, with headline and food inflation trending upwards, while core inflation rate continued to moderate for the fourth consecutive month.

    This development according to the Committee, “has created uncertainty as to the appropriate policy stance at this time. However, since the factors underpinning the inflationary pressures were mainly structural, a monetary response may not be appropriate at this time,” Sanusi stated.

  • ‘MPC may leave rate at 12%’

    Ahead of tomorrow’s meeting of the Monetary Policy Committee (MPC), analysts have forecast that the Central Bank of Nigeria (CBN) will leave the Monetary Policy Rate (MPR) and Cash Reserve Ratio (CRR) unchanged at 12 per cent, until broad-based macroeconomic stability has been achieved.

    MPR is the benchmark rate by which the CBN determines interest rate while CRR is a portion of banks’ deposits kept by banks with the CBN.

    Fixed Income & Currencies Analyst at Ecobank Nigeria, Olukunle Ezun, said key issues influencing whether to hold or cut rates are the naira and inflation short term outlook, fiscal performance and external factors such as the eurozone crisis and the United States “fiscal cliff”.

    Ezun said in an emailed report that expectations are skewed towards the MPC holding the MPR unchanged at 12 per cent despite inflation slowing and increased capital inflows linked to Nigeria’s inclusion in a key global investors’ bond index.

    “One argument against an MPR cut is the capital outflows by non-resident portfolio investors that would undermine recently attained naira stability. The likelihood of the MPR being held unchanged could lead to some fixed income market drift that lacks direction,” he said.

    He said the MPC has met five times so far this year, and at each meeting, has left the MPR unchanged at 12 per cent – it was last raised by 275 basis points in October, last year.

    “Going into the meeting, there are some expectations that the CBN could ease monetary policy in line with some other African countries following the slowdown in annual inflation to 11.3 in September,” he said.

    However, most market expectations are skewed towards the MPC holding the MPR unchanged at 12 per due to concerns over the eurozone crisis and possible fiscal cliff in the United States both of which indirectly will present downside risks on naira.

    He said that although market operators are committed towards making markets for Federal Government Nigeria (FGN) bonds and Treasury bills in the primary market, trading in the secondary market has gradually slowed in terms of transaction volumes since the beginning of November.