Monday, January 25, 2016

MPC may review forex embargo on 41 items

… As analysts see major policy rates remaining unchanged

Stories by Blaise Udunze

Despite the current crisis rocking Nigeria's economy including instability in its foreign exchange market the depreciation of Naira and depletion in the reserves, some analysts are optimistic that key policy rates of Cash Reserve Ratio and the Monetary Policy Rate are likely to be left unchanged at the end of today's meeting of the Monetary Policy Committee (MPC).

These were the projections of some of the experts who spoke to Daily Sun ahead of the Central Bank of Nigeria's first bi-monthly Monetary Policy Committee meeting for the year which ends today in Abuja.

Among the plethora of issues considered by the committee, reliable sources privy to key decisions to be made at the meeting disclosed that the dwindling foreign reserves, currency instability, banks' lending to real sector, and how to align monetary policies with the 2016 budget and adjustment in some of the forex control measures will be top priority. 

There have been calls from Nigerians and International Monetary Funds (IMF) for the devaluation of the Naira, but some commentators ruled out sudden implementation of the currency devaluation.

For instance, Renaissance Capital, an international  private equity firm was of the view that Nigeria's response to devaluation is not the best at the moment.

It frowned at countries like Saudi Arabia-style foreign exchange (FX) reserves managers for being unwilling to allow their currencies to adjust, adding that instead, such nations are heading down the route of FX rationing, capital controls, tightened banking regulations, ultra-tight liquidity, import restrictions, and multiple exchange rates. 

The CEO/MD, Cowry Asset Management Limited, Johnson CHukwu, said the exchange rate, CRR and MPR would be left unchanged in order to align with the Federal Government's fiscal policy plan.

"The mood of the Federal Government is that the rates should be kept unchanged. The Cash Reserve Ratio and the Monetary Policy Rate will be left unchanged, while the exchange rate will also be left unchanged," he said.

The Head, Research and Investment Advisory, Afrinvest West Africa Limited, Ayodeji Ebo, also predicted that the exchange rate, CRR and MPR would likely be left unchanged.

He, however, said the MPC might choose to adjust some of the forex control measures, saying, "The list of banned items may be reviewed considering the fact that the naira volatility became serious when those 41 items were banned from the official CBN window."

Meanwhile some analysts at FBN Quest Research in their economic note said, "The next meeting of the MPC takes place in Abuja on Monday and Tuesday. Judging by the intensity of the media commentary, we could be forgiven for thinking that its only decision is whether to adjust its exchange rate policy.

"The depletion of official reserves, the slide in the oil price and the intermittent global market turmoil emanating from China and elsewhere could make a good case for devaluation. We are not so sure. The preference of the CBN and the MPC is to deploy administrative measures."

"We would not be surprised by some new measures. In any event, the committee may well want to assess the impact of its recent steps before announcing a devaluation, or even introducing some new ones."

From Ecobank, Kunle Ezun, said it was unlikely that the MPC would take any major policy decision, adding that the committee might delay major decisions till future meetings within the year.

A ratings agency, Standard & Poor's, on Thursday said that Nigeria would have to devalue its currency at some stage in 2016 and in gradual adjustments, a position that aligns with that of Afrinvest West Africa, an investment research company which also believes a devaluation of the local currency is only a matter of time.

"Hence, we project at least a 25 per cent adjustment of the Naira to N265.50/US$1 during half year 2016," the company stated in its outlook.

The United States dollar has exchanged between N295 and N300 since the beginning of last week ahead of the rate-setting meeting, as the naira weakened to its lowest week before last after the CBN halted dollar sales to Bureaux de change operators.

The local currency has since stabilised at N300 to the dollar on the parallel market, while on the interbank market, the Naira currency trades around N197.

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