CBN rejects Naira devaluation, retains MPR at 11 per cent; capital market reacts, down by 0.55%

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), on Tuesday, retained the Monetary Policy Rate at 11 per cent.
The CBN Governor, Mr Godwin Emefiele, who announced this at a news conference in Abuja on the outcome of the MPC meeting, said the apex bank had no immediate plan to further devalue the Naira.
Emefiele said though for 14 months, oil prices at the international market had continued to fall, the Federal Government had no immediate intention to further devalue the Naira.
The Naira was devalued in November 2014, by 22 per cent from N155 to N168 to a dollar at the interbank rate.
“We don’t have any immediate plan to devalue the Naira. However, we are already working on different scenarios; the models are being worked on. With this models, we try as much as possible to look at scenarios under different crude prices and we will continue to discuss at management and monetary policy committee level.
“We will try as much as possible to share our thoughts with the fiscal authorities to harmonise our positions to ensure that notwithstanding the drop in crude prices, we can continue to run government and do business,” he said.
Emefiele said the decision to retain the current monetary policies by members of MPC was unanimous. “In consideration of the headwinds in the domestic economy and the uncertainties in the global environment, the committee decided by a unanimous vote to retain the Monetary Policy Rate at 11 per cent.
“Cash Reserve Requirement (CRR) was retained at 20 per cent, Liquidity Ratio (LP) at 30 per cent and the asymmetric corridor of +200 basis points and -700 basis points around the MPR,” he said.
This is the second time the apex bank will be retaining the MPR, CRR, Liquidity Ratio and the asymmetric corridor. Emefiele said the decision to retain the rate was taken to ensure that the objective of easing lending to the real sector of the economy was achieved.
He said while the apex bank had in November taken steps to encourage banks to lend to the real sector of the economy, the impact of that decision was yet to be felt.
“The committee acknowledge the continuous excess liquidity in the system as well as the tendency of the banks to invest excess reserves in government securities, rather than extend credit to the needed sectors of the economy.
“To this end, the committee once again urges banks to improve lending to the real sector as part of their patriotic obligations to the country.
“We urge them to continue to explore ways of incentivising lending to employment and growth generating sectors, particularly SMEs.’’
Emefiele said although CBN had no right to force banks to lend to the real sector like agriculture, solid minerals and Small and Medium Enterprises sectors, they would continue to adopt moral suasion.
“Unfortunately, DMBs are in the business to make money and we cannot regulate their interest rate. And so it can be difficult to really force them to lend to a particular set of people.
“But what we can continue to do is to put in place policies that will encourage them to do so or we can continue to incentivise them by putting in place policies that will encourage them to do so.
“So, it is a free market and we cannot really compel them as it is expected, but we will continue to try,’’ he said.
According to him, this is why at the last meeting we reduced CRR from 25 per cent to 20 per cent.
“And we insisted that banks can only enjoy the reduction if they introduce to CBN projects that are targeted at the real sector such as manufacturing, agriculture and the SMEs.’’ Emefiele said that the committee had also foreseen a longer period of low revenue from oil sources which would necessitate hard and uncomfortable choices for the country. He said while the episode of low oil prices which occurred in 2005 lasted for a maximum of eight months, the current situation was expected to continue over a longer period.
It would be recalled that there has been a drop in crude oil prices from a peak of $114 per barrel in July, 2014 to as low as $30.25 per barrel as at January 26, 2016.
The governor said since oil prices had been on a steady decline, certain trade-offs had to be envisaged and accommodated.
As a result of the drop in oil revenues, Emefiele said the need for consistent, sound and coordinated macro economic policy had become inevitable.
He put the balance in the country’s foreign reserve at $28 billion.
Meanwhile, trading at the Nigerian Stock Exchange (NSE) on Tuesday closed on a downward trend as the market reacted negatively to the outcome of the MPC meeting.
Market indicators, following the meeting, dropped by 0.55 per cent due to price losses by some blue chip equities.
The market capitalisation shed N45 billion to close at N8.196 trillion against N8.241 trillion recorded on Monday.
Similarly, the All-Share Index lost 131.56 points or 0.55 per cent to close at 23,832.08 against 23,963.64 posted on Monday.
Alhaji Rasheed Yusuuf, the Managing Director, Trust Yield Securities Ltd., attributed the development to portfolio investors’ reaction to the Central Bank of Nigeria’s retention of naira exchange rate at N197.
Yusuuf said that the foreign investors had been clamouring for naira devaluation. He attributed the market trend reversal to activities of portfolio investors that still remained in the market.
Nestle topped the losers’ chart, dropping by N16.16 to close at N708.85 per share.
Unilever came second with a loss of N2.05 to close at N39.04, while GlaxoSmithKline declined by N1.40 to close at N26.60 per share.
Nigerian Breweries fell by N1.16 to close at N101.64, while Stanbic IBTC depreciated by 30k to close at N13 per share. On the other hand, Seplat led the gainers’ chart with N6.34, to close at N170.88 per share.
7UP followed with a gain of N6 to close at N196, while Cadbury gained N1.34 to close at N15.92 per share.
Julius Berger improved by N1.10 to close at N43.10, while PZ chalked up 75k to close at N21 per share.
Also, the volume of shares traded closed lower with an exchange of 142.85 million shares valued N1.64 million transacted in 3,298 deals.
This was in contrast with 215.18 million shares worth N2.10 million exchanged in 3,853 deals on Monday. Zenith Bank, for the second consecutive day, remained the toast of investors, trading 17.82 million shares valued N216.11 million in 234 deals.
GT Bank followed with 15.44 million shares worth N246.95 million traded in 282 deals, while FBN Holdings sold 14.51 million shares valued N59.90 million in 301 deals.
UBA accounted for 10.22 million shares worth N30.46 million transacted in 125 deals, while Access Bank exchanged 10.12 million shares valued N41.62 million achieved in 109 deals.