A member of the Monetary Policy Committee of the Central Bank of Nigeria (CBN), Festus Adenikinju has warned that Nigeria’s domestic inflation is still unacceptable high and is putting pressure on the country’s domestic interest rates.
In his personal statement released by the CBN, Adenikinju said the situation is also affecting the standard of living of Nigerians, noting that the CBN should continue to use the various administrative tools at its disposal to control excess liquidity in the system.
Speaking to the pressure on Naira, Adenikinju told the committee that foreign exchange rate speculations are fueling depreciation of the local currency in all the exchange rate windows.
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Naira has suffered both open and behind-closed-door devaluation amidst the scarcity of inflow into the Nigerian economy. Foreign investors have remained wary of the CBN capital control measure to stem draining external reserves position.
Spreads between the official foreign exchange rate and the parallel market price have always given room for currency arbitrage in Nigeria while the apex bank struggles to harmonise rates.
In 2015, while the official rate was pegged at N196.5, Naira was traded at the parallel market at N268.
The official exchange rate was depreciated to N304.5 while naira was exchanged at N374. In 2017, the official exchange rate faced subtle devaluation to N305.5 and N306.5 the following year 2018.
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In 2020, CBN announced an adjustment to the official exchange rate to N379.5 from N307.5 in 2019 causing a massive market stir while currency arbitrageur cash in on weak foreign exchange earnings into the country.
The parallel market rate was as high as N480. In 2021, the Naira exchange rate crossed the N500 mark as the CBN unified the official and autonomous exchange rate as currency traders created artificial scarcity to increase spreads.
In his personal statement, Adenikinju said there is a need for a timely and orderly withdrawal of forbearance on loan restructuring granted to the banking sector.
Adenikinju noted that the growth in aggregate credit indicates that the CBN policy on Loan-to-Deposit Ratio (LDR) is working, and defaulting banks should be encouraged to keep to the LDR.
He explained further that various intervention programmes of the CBN are already providing strong support for the youths, women, and those who could not readily access the formal credit market.
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Lending to households increased from N1.17 trillion in Q1 2020 to N1.22 trillion in Q1, 2021, he added. However, Adenikinju told the policy committee that there is a need to expand the Targeted Credit Facility (TCF) and the Agri-Business/Small and Medium Enterprises Investment Scheme (AGSMEIS) to ensure more Nigerians benefit from the programme.
“In addition, regular evaluation of the programmes is necessary to ensure they meet their objectives. However, there are many headwinds assailing the domestic economy”, he added.