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Accumulate reserves as buffer against external shocks – Experts advise CBN

By BusinessNews Staff on June 5, 2014

As the new Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, settles down for business, some experts in the financial services sector have urged the bank to accumulate reserves as a buffer against external shocks.

In a report made available to THISDAY, analysts at FBN Capital noted that Nigeria remains highly vulnerable to a sharp and sustained fall in oil prices, saying that
Nigeria was saved by the massive reserves it had when oil price went below $40/b in 2008.

“This was the case in fourth quarter of 2008 and first quarter of 2009. The price was briefly below $40/b, administrative controls on imports were reintroduced and the naira was effectively devalued.

Nigeria’s defences are no better than five years ago, official reserves, in fact, are lower. We are not complacent about the return of those market conditions, notwithstanding our oil price forecasts. The vulnerability has increased due to the rise in production losses/leakages. We feel strongly that the CBN should continue to accumulate reserves as a buffer against external shocks.”

They explained that Nigeria is a member of the global village and vulnerable to a world downturn through financial and trade flows. They however, added that Nigeria’s financial crisis in 2009 was home-grown and caused by the failings of its own banks rather than borrowings from foreign banks.

When Emefiele appeared before the Senate during his confirmation, he gave a hint of the monetary policy path he might follow.

He stated that the CBN under his watch would adopt development banking model. He also promised to look into the dollarisation of the Nigerian economy.

“I think one of the core mandates of the CBN is to ensure that we maintain a legal tender and respect it and ensure that whatever is done, our naira has to be used as a legal tender. I will take it as a primary responsibility to ensure that the attempt to dollarise the Nigerian economy is discouraged. We should not allow it because it will create problems for the economy,” he had said.

According to him, the core mandate of the CBN is to achieve monetary and price stability, ensure strong exchange rate and build foreign reserves, adding that he will ensure that a sound financial system is enthroned in Nigeria.

“We will work hard to achieve macro-economic stability in the country where inflation rate will continue to come down. We will also ensure that the interest rate will continue to come down.

“During my tenure, whatever monetary policy decisions we take will be those that will lead to the improvement in the level of employment in Nigeria because employment is very crucial to national development,” the CBN governor said.

[This Day]

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