CBN to unveil new Forex policy this week

The Governor, CBN, Mr. Lamido Sanusi, told Reuters on Sunday, “I think we have reached the desired degree of stability for the naira and I think within the next few days, you may hear an announcement on what the sense is.”

The new policy will see the apex bank reducing the official exchange rate of the naira to either N155 or N156 to the dollar.

The move, it was gathered, had become imperative in order to protect investors from losing their money to exchange rate fluctuations as well as ensuring relative stability of the naira.

Sanusi had already given an indication to that effect when he said, “The primary responsibility of the CBN is price stability; we don’t really provide growth, but we provide the environment where investors feel safe to invest.

“We think we might move to N155 or N156 and people know that over the next 12 months, they can expect the CBN to keep within that band.”

If the naira is officially devalued, the Registrar, Institute of Finance and Control Nigeria, Mr. Eohoi Godwin, told our correspondent in a telephone interview that it would help to cushion inflationary threats.

He said, “What we need is to stabilise the naira. I am comfortable with the move by the CBN because it is a step in the right direction.

“This is the only way we can make the naira stronger in the international market. The high rate will discourage people from going into speculative trading in the naira.”

Also, the need to cushion the effects of rising food and commodity prices in the nation’s economy, it was gathered, might force the Monetary Policy Committee of the CBN to increase the Monetary Policy Rate when it meets on Monday (today) and Tuesday.

It was learnt on Sunday that the MPC was concerned that the risk to price stability posed by fiscal operations needed to be constantly monitored if inflation was to be brought down to a single-digit level in the short to medium term.

Top on the agenda of the meeting of the 12-member committee to be chaired by the CBN Governor, Mr. Lamido Sanusi, will be to consider the upward trend in the Consumer Price Index, with a view to unveiling policies to keep it low.

The apex bank had battled persistently in the last 10 months to effectively achieve its major monetary policy objective of price stability.

But the latest inflation figures released by the National Bureau of Statistics last week revealed that the monetary tightening policies of the apex bank had not succeeded in keeping the CPI at the desired single-digit level.

For instance, the CPI, the bureau said, rose to 10.5 per cent in October, indicating an increase of 0.49 per cent over the 10.3 per cent recorded in September.

Similarly, the all items year-on-year average consumer price level for urban and rural dwellers rose by 7.8 per cent and 12.8 per cent respectively.

With respect to the 12-month average, the CPI change was 11.1 per cent, which is slightly lower than the 11.4 per cent figure in September.

On food inflation, the NBS report put the average change in prices on a year-on-year basis at 9.7 per cent as against the 9.5 per cent recorded in the preceding month of September.

It also explained that the biggest contributors to the country’s inflation were increase in the prices of kerosene and diesel.

Last month, the biggest contributors to the inflation figures, according to the bureau, were high electricity tariffs and food items, especially yam, fish and cooking oil.

Ahead of today’s meeting, it was gathered that the need to stabilise the prices of these commodities might compel some of the members of the committee to vote in favour of a further tightening in liquidity.

The apex bank, had, in the last 10 months, raised the MPR six times in a bid to tighten liquidity.

The MPR, the anchor rate at which the CBN lends to Deposit Money Banks, was 6.25 per cent on January 25.

The apex bank raised it to 6.50 per cent in March; 7.5 per cent in April; eight per cent in May; 8.75 per cent in July; 9.25 per cent in September and 12 per cent on October 10, 2011.

Finance analysts, who spoke to our correspondent on the likely outcome of the meeting, noted that the harsh reality of the planned removal of subsidy on petrol would further aggravate inflation, weaken disposable income and lead to economic inequalities.

For instance, the Head, Research and Strategy, BGL Securities Plc, Mr. Olufemi Ademola, said the last monetary tightening policy of the CBN was a short-time solution to the volatility of the naira.

He pointed out that the increase in inflation figures had given credence to the position that the single-digit inflation rate of 9.4 per cent, which was recorded in July and sustained in August at 9.3 per cent, was temporary.

Ademola said, “As expected, the financial market bears the brunt of monetary tightening. We do not expect any significant up-tick in economic activities in the remaining months of 2011.

“For the rest of 2011, real sector activities will remain below optimal as the full effects of the surge in interest rates and constrained credit environment permeate the system.

He added, “The unfolding political and fiscal policy environment may also result in market re-appraisal of current and future macroeconomic dynamics for the Nigerian economy with attendant impact on asset pricing.

“Domestic financial markets are expected to remain largely unpredictable as the naira is depreciated officially and a likely additional increase in benchmark interest rate is affected at the next MPC meeting.”