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Expectations as Alade-led monetary policy committee meets Monday

By BusinessNews Staff on March 17, 2014

There are expectations that when the monetary policy committee meets on Monday and Tuesday, the Sarah Alade-led committee may take some steps to rescue the naira and stabilise foreign exchange market.

Although a section of the nation’s finance community may not be expecting a fundamental departure from the monetary policy directions inherited from the tenure of the suspended Governor of Central Bank, Mallam Sanusi Lamido Sanusi, some analysts believe the CBN may announce some decisions to address the challenges in the financial system.

Tomorrow’s meeting will be the first gathering of the MPC after the controversial suspension of Sanusi last month and analysts believe the free fall of the nation’s foreign reserves, which dropped to $38.7billion last week, will top the agenda.

Some analysts said although Sarah Alade’s tenure is too short to make appreciable impacts (given the fact that a substantive CBN Governor is due to resume in June), the committee may however decide to depreciate the currency by approximately five per cent at tomorrow’s meeting or tighten the monetary policy rate to the maximum, leaving little room to manoeuvre.

Making the submission in his Monthly Economic News and Views paper with the theme “The Politics of Suspension, Succession & Re-election’ delivered at the March 2014 Lagos Business School Breakfast Meeting, the Chief Executive Officer of the company, Mr. Bismarck Rewane, who shared this view said, “With external reserves now at $39 billion and likely to decline further, options are narrow and choices are hard.” Interestingly, few days after FDC’s report was made public, the external reserves fell further hitting $38.7 billion.

THISDAY checks showed that the CBN intervention to save the naira continued unabated last week as a total of $797,693 million was sold at the Retail Dutch Auction.

A breakdown showed that on March 10, $399. 97 million was offered for sale while $397,696 million was also sold two days later.

Rewane pointed out further that with the dwindling oil revenues and increasing demand for foreign exchange which rose to $3.1 billion in February and the plunging of the external reserves to a 17-month low of $39 billion, the likelihood of depreciation of the national currency had become more imperative than ever before.

The financial consultant, who listed the depletion of the Excess Crude Accounts to $2.5billion amongst other unhealthy fiscal features of the domestic economy, noted that the pressure on naira had been more as the currency comes under speculative and arbitrage attack and panic buying after failures by the authorities to reduce forex demand by various measures, including deliberate delay of the downstream import allocations.

The belief is that the alternative to outright depreciation of naira is to tinker with all the rates in order to address issues bordering on the falling rate of naira and exit of portfolio investment which market watchers blamed for the downward trend in the value of the nation’s foreign reserves.

According to him, one of the options before the committee is to increase MPR which is currently at 12 per cent to 13 per cent p.a.

He will also not rule out an increase in private sector CRR from 12 to 15 per cent, while that of the public sector currently at 75 per cent may rise to 100 per cent.

The committee, he said, can however leave an option to increase liquidity ratio till the May edition of the MPC meeting.

Should the monetary policy committee take these steps, the FDC chief said the outcome will bring about a stable naira while reserves depletion will slow down?

Another option that could be adopted by the committee, according to Rewane, is for the CBN to allow naira slide by N5 or 3 per cent to N162 at the official market and increase public sector CRR to 100 per cent.

He maintained that the decision will bring about a situation whereby parallel and interbank rates will converge at N168 with a proviso however that in all cases, if the oil revenue leakage is not addressed, the naira pressure will resume later.

Looking at the odds against the success of the acting governor of the bank, Rewane said her tenure is too short to make an impact but long enough to stabilise things if revenues improve and leakages stop, adding that if leakages continue it will be a thankless job.

In a preview of the financial and economic outlook in the weeks ahead, Rewane said the CBN is in between a rock and a hard place as the options for the Acting CBN Governor, Mrs. Sarah Alade are narrow and hard.

QUICK TAKES

Who Owns the Oil?

One of the lead speakers at the Northern Leaders’ Conference, Usman Bugaje, has raised a controversial issue on the ownership of Nigeria’s crude oil domiciled majorly in the Niger Delta region.

According to him, it is wrong for any state to claim that it is oil producing because 72 per cent of the total land mass in the country belong to the North and that by the United Nation’s law; it is only the North that actually has the right to claim ownership.

Dr. Bugaje, in his presentation, insisted that “there are no oil producing states.” He argued that “the only oil producing state is the Nigerian state itself.”

He explained, “Whatever mileage you get in the sea, according to the United Nations Law of the sea, is a measure of the land mass that you have; that is what gives you the mileage into the sea…and the land mass of this country, that gives that long 200 nautical miles or more into the ocean, is because of that 72 per cent of the land mass of this country, which is the North.”

To buttress his argument, Dr. Bugaje also said, “The investment came from the Nigerian state and the territory belongs to the Nigerian state.”

Fuel Scarcity

Although the Ministry of Petroleum Resources has continued to boast that it has adequate stock of fuel in its kitty, the biting scarcity in most parts of the country last week has made nonsense of such claim.

Speaking during the inspection of some filling stations in Lagos State, the Minister of Petroleum Resources, Diezani Alison-Madueke said the country had enough PMS to meet the domestic demand.

“We have enough fuel to wet the country, but the challenge we are having is that, after loading, some truck drivers will not supply the lifted products at the designated filling stations.” The opposition party, All Progressive Congress and the Nigeria Labour Congress are already insinuating a grand design to raise fuel price, an allegation which the Presidency has denied. The question is for how long will Nigerians wait for the long queue for fuel to end?

E-payment

The Central Bank of Nigeria (CBN) has said that banks that use unlicensed third party electronic payment solution will pay a fine of N10 million.

This was part of the regime of sanctions contained in the guidelines on electronic payment of salaries, pensions, suppliers and taxes in the country.

The guidelines spell out the roles and responsibilities, of all stakeholders in the end-to-end electronic payment of salaries, pensions, suppliers and taxes.

It also spells out sanctions and fines for sundry contraventions of the guidelines. For example, when a bank uses an unlicensed third party e-payment solution for end-to-end e-payment of salaries etc., the CBN would suspend its e-payment operations with the bank, issue a warning letter to the managing Director and impose a fine of N10 million for every repeated occurrence.

[This Day]

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