The committee, in a communique issued at the end of its first meeting for the 2016 fiscal period in Abuja, observed that while the period 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 of time.
The CBN Governor. Mr. Godwin Emefiele, who read out the communique shortly after the meeting, said the development would necessitate huge sacrifices from Nigerians.
Crude oil prices had declined from a peak of $114 barrel in July 2014 to $30.25 per barrel on Tuesday.
The CBN governor said since oil prices had been on a steady decline, certain trade-offs would have to be envisaged and accommodated.
He said, “The committee observed that the last episode of low oil prices in 2005 lasted for a maximum period of eight months. However, the current episode of lower oil prices is projected to remain over a very long period.
“Consequently, it is imperative to brace for a longer period of low government revenues from oil sources, which would necessitate hard and uncomfortable choices as the economy transits to more sustainable sources of revenue, consistent with the economic realities and strategic objectives of the country. In the circumstance, certain trade-offs must be envisaged and duly accommodated.”
As a result of the drop in oil revenues, the governor said the need for consistently sound and coordinated macro economy policies had become inevitable.
In view of this, Emefiele said the central bank was currently refining the framework for foreign exchange management in order to ensure a more effective and liquid forex market.
He added, “In the medium term within which monetary policy is cast, the need to allow policy to produce the desired outcomes becomes a key consideration in the policy mix.
“Consequently, the bank is fine-tuning the framework for foreign exchange management with a view to ensuring a more effective and liquid foreign exchange market, taking into account Nigeria’s strategic development priorities, with the policies being designed within an environment of regularly ensuring consistency with monetary and fiscal policies.”
On the Monetary Policy Rate, the governor said the committee decided to unanimously retain it at the current 11 per cent.
The bank had earlier in November last year reduced the MPR from 13 per cent to 11 per cent.
The CBN governor said the committee also decided to retain the Cash Reserve Requirement at 20 per cent and the liquidity ratio at 30 per cent, with the asymmetric corridor at +200 basis points and -700 basis points.
He said the decision to retain the rates was taken in order to ensure that the objective of easing lending to the real sector of the economy was achieved.
Emefiele explained that while the central bank had last November taken steps to encourage Deposit Money Banks to lend to the real sector of the economy, the impact of that decision had yet to be felt.
He lamented that while the objective of stabilising the financial system in the aftermath of the Treasury Single Account withdrawals and JPMorgan’s delisting of Nigeria from its index had been largely achieved, the goal of increasing lending to key sectors of the economy had not been realised.
The governor said the CBN would continue to use moral suasion to encourage the DMBs to support financing for targeted lending to the real sector as well as agriculture, solid minerals and Small and Medium Enterprises sectors of the economy.
He said, “The committee acknowledged the continuous liquidity surfeit in the system stemming partly from the recent growth-stimulating monetary policy measures 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 urged the Deposit Money Banks to improve lending to the real sector as part of their patriotic obligations to the country, and enjoined the management of the central bank to continue to explore ways of incentivising lending to employment and growth-generating sectors, particularly the SMEs.”
When asked if the CBN would consider forcing the banks to lend to the real sector, Emefiele stated that inasmuch as it would prefer that the DMBs should increase lending to the real sector, it would be practically impossible to force them to do so due to the fact that the banks were established to make profit.
He said, “Unfortunately, the DMBs are in 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. We will continue to try. This is why at the last meeting, we reduced the CRR from 25 per cent to 20 per cent. And we now insisted that liquidity that would be made available or that those banks could only enjoy the reduction if they introduce to the CBN projects that are targeted at the real sector such as manufacturing, agriculture and the SMEs.
“It is just two months since this policy (was introduced) and it is still early to assess the impact. However, we remain optimistic that the banks will heed this advice and lend to the real sector. Because this liquidity is just sitting at the CBN and until they decide to work with us on this, the funds will not be made available.”
When asked if the CBN would consider the devaluation of the naira in view of the increasing pressure on the currency, the governor said there were no immediate plans to do so.
He said the central bank was working on a number of scenarios under different crude oil prices, noting that discussions at management and monetary policy committee levels would still continue.
Emefiele said, “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. We have them and as much as possible, we will look at scenarios under different crude prices and we will continue to discuss at management and monetary policy committee levels.
“We will try as much as possible to continue to share our thoughts with the fiscal authorities with the view to harmonising our positions to ensure that notwithstanding the drop in crude prices, that we are able to continue to run government and do business.
“We are very conscious of this and we know that we are at an era where the drop in or low crude price will remain for a long time with us. It is not going to be like in 2008 or 2009 where it was just for about eight months. So far, we have seen this for 14 months now and there doesn’t seem to be any light at the end of the tunnel.”
On the introduction of the N50 stamp duty charge, Emefiele explained that the decision was taken to support the government in its bid to generate more revenue due to the drop in oil prices, adding that the nation’s external reserves currently stood at about $28bn.
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