CBN Announces $40bn External Reserves Target, Releases 2018 Economic Forecasts
The Central Bank of Nigeria, CBN, has said the regulator may change its monetary policy stance next year from the current tightening position to an easing stand that will see the benchmark interest rate come down from the current 14 per cent.
This, it believes, will open an avenue for more loans at lower interest rates from banks to companies.
The CBN has kept the Monetary Policy Rate, MPR, the benchmark interest rate that determines the rate banks give loans to customers, at 14 per cent since the half year of 2016.
The CBN Governor, Godwin Emefiele, said this on Friday in the apex bank’s economic forecast for 2018, while also announcing that inflation rate might drop from the current 15.98 per cent to a single digit.
The CBN also said the country’s external reserves, which had faced daunting challenges, rising since the wake of the fall in oil prices in June 2014, would hit $40bn next year from $34.3bn as of November 3, 2017.
Emefiele hinged his forecasts on the foreign exchange and exchange rate management policies of the apex bank in recent months, which has led to a drop of 65 per cent in the monthly food import bill of the country from an average of $5.5bn to $1.9bn as of June 2017.
The CBN governor released the forecasts at the Chartered Institute of Bankers of Nigeria Annual Bankers Dinner in Lagos in a speech tagged ‘Policy Options for Sustaining Nigeria’s Economic Upturn.’
According to the CBN governor, the economy has recorded some remarkable improvements in recent times and if the pace continues, the apex bank will adopt a growth-focused monetary policy stand that will see more credit to the economy.
Emefiele said, “We have also seen a significant appreciation of the naira from over N500/$1 to about N360/$1. In addition, we have seen stability in the rate for over six months now. I am glad to note that the exchange rate is not only stable, it is also converging across various windows and segments of the market.
“Since the establishment of the I&E Window, we have recorded about $10bn in autonomous inﬂows through this window alone.
“This reﬂects the effect of the increased transparency which that window accords the FX market and its benign impact of improving investors’ confidence and business sentiments. Our reserves have recovered significantly from a low of just over $23bn in October 2016 to over $34.3bn as of November 3, 2017.”
He added, “Today, among the benefits of that policy is the considerable decline in our import bills. From an average of about $5.5bn, our monthly import bill has fallen consistently to $2.1bn in 2016 and $1.9bn by half year 2017. This is indeed commendable.”
Emefiele said although the current developments in macro-economy were welcomed, leaders and policymakers must become neither complacent nor over-confident.
As a result, he said the CBN might change its monetary policy stand next year if certain thresholds were achieved.
The CBN governor stated, “I expect that barring any unforeseen shocks, inﬂationary pressure will continue to ease; I believe that it may return to very low double-digit or high single-digit levels during the next year. Though the base effect had diminished, I expect that as the socio-economic factors that are driving food inﬂation are resolved, the inertia therein would dissipate and the pace of headline disinﬂation will grow.
“Foreign exchange reserves will continue to grow. Over the last 12 months, Nigeria’s FX reserves grew by over $10bn from just over $23bn in October 2016 to over $33bn in October 2017. It is my belief that if we remain resolute with our efforts, policies and actions, we can attain an FX reserve position of about $40bn by end 2018.”
He added, “Exchange rate stability will continue. As we entrench and sustain the transparency in the FX market, as FX reserves accretion continues, and market conﬁdence and improved sentiments remain, I expect that the exchange rate will not only be stable but would begin to appreciate against major currencies.
“The adverse competitiveness outcome, which such appreciation may entail, would be adequately mitigated by proactive policies to ensure that our balance of payments position is not undermined.
“Monetary policy stance could change when the underlying fundamentals become supportive. If the pace of disinﬂation becomes adequate and we see inﬂation at predicted levels, I am very optimistic that MPC may begin to see strong justiﬁcation for an easing of monetary policy, which may further accelerate the recovery process.”
The CBN governor said the implementation of FX restriction on certain items had recorded spectacular improvements in domestic production.
For example, he said data from the Thailand’s Rice Exporters Association indicates that in 2012, about 1.2 million metric tonnes of rice were exported to Nigeria.
However, in 2016, which was the ﬁrst full year of the implementation of Nigeria’s restriction policy, rice exports to Nigeria had fallen by 99 per cent to only 784 metric tonnes.
This signiﬁcant reduction in imports of rice from Thailand represents a saving of over $600m to Nigeria in 2016 alone, according to the CBN governor.
The President, CIBN, Prof. Segun Ajibola, commended the CBN for its policies aimed at improving the economy.
He said the CIBN would continue to collaborate with the apex bank to enhance economic growth.
Governor Akinwumi Ambode of Lagos State, who was represented by the Secretary to the State Government, Tunji Bello, commended the institute on its activities in enhancing growth.