CBN Reduces Excess Liquidity


THE Central Bank of Nigeria, CBN, is reducing excess liquidity by withdrawing N1.2 trillion from the economy in its bid to maintain single digit inflation and reduce demand for foreign exchange. Godwin Emefiele, governor, CBN, said in order to achieve its objective of single digit interest rate, the CBN has persistently pursued a tight money supply policy, through aggressive mop up of idle cash (excess liquidity) in the banking system, by selling treasury bills.

He said the treasury bills are short term government debt instruments and that they are usually issued by central banks to borrow money on behalf of the government from the public. They are also used to control the amount of money in the economy. “In continuation of its tight money supply policy, the CBN announced that from this week till first week in March of 2015, it would sell N1.22 trillion worth of treasury bills. The treasury bills come in three variant of 91 days, 182 days and 365 days. This week the CBN intends to sell N248 billion worth of treasury bills comprising N55.41 billion worth of 91 days treasury bills, N83.13 worth of 182 days treasury bills and N110.4 billion worth of 365 days treasury bills.

“In January 2015 the apex bank intends to sell N385 billion worth of treasury bills comprising N80 billion worth of 91 days treasury bills, N98 billion worth of 182 days treasury bills and N205 billion worth of 365 days treasury bills. In February, the apex bank will sell N77.62 billion worth of 91 days treasury bills, N60 billion worth of 182 days treasury bills and N197 billion worth of 365 days treasury bills, totalling N334 billion worth of treasury bills to be sold in February. In the first week of March, the CBN will sell N254.95 billion worth of treasury bills comprising N17.85 billion worth of 91 days treasury bills, N50 billion worth of 182 days treasury bills and N187 billion worth of treasury bills,” he said.

The apex bank, at its last Monetary Policy Committee, MPC, meeting, had blamed the recent upsurge in foreign exchange demand on the excess liquidity in the banking system. The committee in its communiqué stated, “Available data indicates that banking system liquidity has been lavishly deployed in pursuit of speculative foreign exchange trading at the short-end of the market. As a result, it increased the cash reserve requirement of banks on private sector deposit to 20 percent from 15 percent, while it increased the Monetary Policy Rate, MPR, to 13 percent from 12 percent.

Inflation Falls 7.9 Percent in November

NIGERIA’s consumer price inflation fell for a third month in November as food price rises slowed again, shaking off weakness in the currency that threatened the costs of living. The National Bureau of Statistics, NBS, said the inflation in the month under review was 7.9 percent, down from 8.1 percent recorded in October. Food price inflation declined to 9.1 percent from 9.3 percent.

Yemi Kale, CEO, NBS
Yemi Kale, CEO, NBS

It warned that increased political spending ahead of the general election and increased demand for foreign exchange might exert upward pressure on the inflation rate. According to the NBS, the marginal decline in money supply, slight increase in agricultural and the continuous fall in global commodity prices (index declined by 11.74 percent year-to-date are major factors contributing to the projected decline in the headline inflation).

“If the rate comes in at 7.9 percent, it will be within the CBN target range for 2014. The CBN will not be swayed by this decline considering the impact of the devaluation of the currency on prices. Therefore, the hawkish stance of the CBN is not expected to change. Also, the rate of change in consumer prices will be within the CBN’s six and nine percent band. This is partly due to the contractual monetary policy and low global commodity prices. Our November 2014 Lagos urban inflation survey revealed a decline in consumer prices from the previous month’s level.”

This is the fifth consecutive month that the Lagos urban index has decreased. The non-food index declined to 8.45 percent from 9.09 percent in November while the harvest dependent food index also rose to 6.33 percent from 6.09 percent in the previous month as market inventories decline.

On inflation outlook for December and January, the NBS said, “The pressure on the naira is expected to be sustained at the interbank market in the near term as foreign investors take out their funds to mitigate possible political risks as the elections draw near. Increased fiscal overdrive and political spending will increase money supply. In addition, the psychological and artificial scarcity of petroleum products at the end of every year is likely to have negative implication on transportation costs. These are major concerns for consumer prices in December 2014 through January 2015.”

— Dec. 29, 2014 @ 01:00 GMT


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