CBN retains lending rate at 12%, CRR on govt deposits at 50%

• Won’t bail out education sector to end ASUU strike
• Decries growing dollarisation of economy by politicians
• Certifies ADH and Kakawa financially fit
CENTRAL Bank of Nigeria (CBN) has again maintained its tight monetary stance contrary to expectation that it would ease it. Yesterday, it retained the Monetary Policy Rate (MPR) at 12 per cent as well as other requirements such as the provision of a 50 per cent cash reserve ratio (CRR) by banks on all public sector deposits.
  This is the outcome of the 234th meeting of the Monetary Policy Committee (MPC) held in Abuja. It is the highest economic policy decision-taking organ of the apex bank.
  Also, CBN Governor, Sanusi Lamido Sanusi, ruled out the apex bank’s intervention in the almost three-month-old Academic Staff Union of Universities (ASUU) industrial action which has paralysed activities in the tertiary institutions following the Federal Government’s inability to meet the N92 billion funding demanded by the lecturers among other agitations.
  ASUU has called on the Federal Government to direct the CBN to intervene in the education sector by providing the funds as it has done in areas such as banking, power, aviation, agriculture and Small and Medium Enterprises, among others.
  But Sanusi yesterday dismissed the request, saying: “I would do that after I have finished my work here as the CBN Governor and if I take up a Federal Government’s job as a Minister of Education.”
  However, he confirmed that Associated Discount House Limited and Kakawa Discount House Limited are stable and healthy.
  He was responding to questions about the viability of discount houses in Nigeria in view of the revocation of the licence of Express Discount Limited and the liquidity challenges being faced by Consolidated Discounts Limited. Mr. Sanusi affirmed that the CBN was satisfied with the financial position of Associated and Kakawa after its investigation of both discount houses.
  He said: “The committee noted that the actions taken at the last MPC have served the purpose of helping the naira avoid the fate of other developing-countries’ currencies by keeping it relatively stable. It also noted the continued moderation in inflation and the benign outlook for the next six months. Finally, with the FOMC decision not to begin tapering asset purchases immediately, and the improved outlook for financial stability in Europe after the German elections, the risks of currency instability are significantly reduced. The monetary stance maintained by the U.S. Federal Reserve is positive for international oil prices and portfolio flows.
  “In consideration of all the issues, the committee decided by a vote of 11 members to hold the MPR at 12.0 per cent. One member voted to reduce the MPR by 50 basis points. 11 members voted to retain the symmetric corridor of 200 basis points around the MPR while one member voted for an asymmetric corridor of 200 basis points above the MPR and 400 basis points below the MPR. All members voted to retain the 50.0 per cent Cash Reserve Requirement (CRR) on public sector funds, and 12.0 per cent CRR on private sector deposits.”
  Sanusi stressed that the MPC noted with satisfaction the positive developments in the economy, especially the moderation in inflation, stability in the financial system and currency markets, noting that the strong growth forecast by the National Bureau of Statistics for Q3 and Q4 on the back of relatively slow growth in Q2.
  He said: “It observed that the actions taken by the bank since the last MPC yielded their intended effect on stabilising the exchange rate while maintaining inflation within its target range. 
  The committee also noted that the fundamentals in the economy, which necessitated the July MPC measures, had not changed substantially; except that the U.S. Federal Reserve had provided clearer insight into the tapering off of its asset purchase programme - Quantitative Easing3. The committee noted that in more than 30 countries surveyed, the naira exchange rate remained one of the most stable having depreciated by only 2.3 per cent from year to date compared with the massive depreciation in the value of other currencies such as the Indian Rupee, the Indonesian Rupiah, the Brazilian Real, the South African Rand and the Ghanaian cedi.”
  Sanusi, however, said the MPC noted the existence of strong foreign exchange demand pressures domestically and which are not necessarily linked to an increase in the import of goods.
  He spoke further: “This non-import related demand was attributed to the build-up in political activities in the country and increasing resort to dollarisation of the economy by the political class. The committee charged the bank to ensure the stability of the currency in the face of these challenges, and to fast-track plans for adopting new regulations aimed at combating money laundering in the BDC segment.”
  Sanusi said the MPC also considered the developments in money market rates which rose astronomically to peak at 40 per cent on September 18, 2013. He explained that the developments were temporary, arising from the postponement/stalemate in sharing the monthly Federation Account Allocation Committee Revenues.
  According to him, banks which participated in the wDAS widow expressed a preference for paying high interbank rate for one day rather than their borrowing from the CBN at 14.0 per cent and being barred from the wDAS window.
  He added that the MPC noted with concern the continued dependence of the banking sector on monetised oil revenues for its liquidity and stressed the need to keep pushing banks into altering their business model to reduce vulnerability.