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TSA: Don’t panic – Emefiele tells banks

By on September 19, 2015

The Governor, Central Bank of Nigeria, Mr. Godwin Emefiele, on Thursday ruled out a naira devaluation, a day after President Muhammadu Buhari said he might not devalue the local currency again.

Emefiele told banks not to panic about the effects of the implementation of the Treasury Single Account policy on the financial system.

The TSA policy, according to analysts, risks draining billions of dollars from the financial system.

In an interview with Reuters, Emefiele said he was ready to inject liquidity if needed into the interbank market, which dried up this week following the directive to government departments to move their funds from banks into a ‘Treasury Single Account at the CBN.

The policy is part of Buhari’s drive to fight corruption, but analysts said it could suck up as much as 10 per cent of banking sector deposits in the economy – playing havoc with banks’ liquidity ratios.

Then JP Morgan kicked Nigeria out of its influential Emerging Markets Bond Index last week due to restrictions that the central bank imposed on the currency market to support the naira and preserve its foreign exchange reserves.

Amid confusion over the implementation of the single account policy, overnight interbank lending rates spiked to 200 percent, but Emefiele denied the policy had provoked a liquidity crisis.

“There is no shortage of liquidity,” he said, pointing to an oversubscribed sale of treasury bills on Wednesday. “A spike is a momentary action. It’s sentiment.”

“I do not think there is any need for anybody to panic,” he added.

Nevertheless, the interbank naira market was paralysed for a third day on Thursday, with banks unwilling to lend to each other, even when rates fell back to 20-30 per cent.

In a sign of the financial ructions, commercial bank cash balances with the central bank that are normally earmarked for foreign exchange or bond purchases plunged to N173bn on Thursday from N486bn two days ago.

Analysts had predicted that the TSA edict could suck N1.2tn ($6bn) out of the commercial banking system.

Emefiele said the amount would be less than N1tn, although he did not give details beyond saying the measure was designed to root out graft.

His comments did not instill confidence in the new rules among economists. “It’s an example of the government deciding on a policy without thinking through the mechanics of how its implementation will work,” said Alan Cameron at Exotix, a London-based specialist in frontier ma0rkets.

Annual inflation hit 9.3 percent in August, above the central bank’s target band.

Emefiele rejected complaints from firms about the difficulty of getting hold of dollars and ruled out the possibility of a default by any company with dollar-denominated debt, saying the bank could “write their cheque and pay them anytime they want.”

 

[Punch]