Trapped funds boost national reserves, says CBN

In from Ali Smart …
The Central Bank of Nigeria (CBN) Mr Godwin Emefiele has said the government has succeeded in plugging loopholes that caused leakages in the system leading to an increase in the nation’s reserves.
According to him, the development has resulted “in some funds being trapped in banks which were in turn returned to the nation’s treasury.”
Emefiele who stated this at the end of the CBN bimonthly Monetary Policy Committee (MPC) meeting in Abuja on Friday, also urged Nigerians to begin to adopt best practices in their dealings given the disposition of the new government.
The Committee underscored the imperative of growing and protecting the country’s foreign reserves and building fiscal buffers in the process of strengthening confidence in the economy which is essential for promoting growth and stability.
Emefiele warned state governors that the bailout was not a grant but a loan because the CBN was stepping in to bailout the states as a lender of last resort.
The CBN, he said will encourage benefiting state governments to diversify their Internally Generated Revenue (IGR) bases, adding that more details of the bailout will soon be made public.
He dismissed fears that the bailout will trigger inflation, stressing that if the affected state workers had been paid their salaries as at when due the money would ordinarily still be in circulation but that the CBN was committed to moderating any inflationary impact the bailout may trigger.
For the national currency the Naira, Emefiele said the CBN cannot continue with intermittent devaluation of the Naira because the Naira is appropriately priced. According to him, “if there is any need to change the value of the Naira, Nigerians will be informed.”
The relatively stable exchange rate in the inter-bank segment the CBN governor noted “can be attributed to the effects of some recent demand management measures. Gross official reserves increased from US$28.57billion at end-May 2015 to $31.53 billion as at July 22, 2015, reflecting the blockage of leakages as well as the bank’s management policies.”
At the end of the MPC meeting members of the committee voted to retain the Monetary Policy Rate (MPR)/Interest rate at 13 per cent with a corridor of +/- 200 basis points around the midpoint; retain the Cash Reserve Ratio (CRR) at 31 per cent; and retain the symmetric corridor of 200 basis points around the MPR.
Overall, the Committee expressed optimism that business confidence would continue to improve as government continues to unfold its economic plans. Emefiele added that “some of the reassuring measures of the administration including efforts aimed at resolving fiscal challenges at the sub-national levels, and the fight against corruption and improving the business environment would unlock the inflow of foreign direct investment.”
Emiefiele stated that the Buhari administration has kept it word as Warri and Port Harcourt refineries have started refining petroleum products for local consumption.
Emefiele stated that the CBN and the Nigerian National Petroleum Corporation (NNPC) had held talks to facilitate the recommencement of refining activities by the two previously moribund refineries.
With this development, Emefiele said Nigerians will soon “start to see a drastic drop in the importation of refined petroleum products.”
He also disclosed that Kaduna refinery will start refining operation next month (August).

Read also: Presidency, PDP argue over bailout funds

On inflation, the Committee stressed that “some of the drivers of the current pressure on consumer prices were transient and outside the direct influence of monetary policy. Pressure on food prices is expected to gradually wane as the planting season gives way to harvests in the months ahead. Early resolution of fuel scarcity would dampen transportation costs and improve food distribution across the country while improvements in electricity supply could steady output at lower costs.”

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