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CBN gives up on its policy of attracting dollars

CBN has given up its policy of attracting ‘hot money’ as it selects an alternative way to fight inflation.

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The Central Bank of Nigeria issued a monetary policy communique explaining why it cut its monetary policy rate from 12.5% to 11.5%, the first drop since May 2020 when it slashed MPR from 13.5% t0 12.5%. The cut in rates means it is no longer targeting foreign investor inflow as a basis for keeping the exchange rate stable.

The CBN has held MPR high for years due to high inflationary pressures believing that higher MPRs could lead to a lower inflation rate. However, the Covid-19 pandemic and the increased price of fuel and electricity suggest this is a battle already lost via hawkish monetary policy.

What they are saying: According to the bank, it believes the higher inflation Nigeria is facing is not due to monetary policy but due to “causal factors” which are outside of its immediate control.

“In the view of the MPC, so far, evidence has not supported the rising inflation to monetary factors but rather, evidence suggests nonmonetary factors (structural factors) as the overwhelming reasons accounting for the inflationary pressure,” the CBN stated.

The structural factors the CBN is referring to are rising in prices of fuel and electricity as well as cost increases emanating from the devaluation of the naira.

“Accordingly, the implication is that traditional monetary policy instruments are not helpful in addressing the type of inflationary pressure we are currently confronted with,” the CBN added.

These issues mean the CBN faces a quagmire in how to combat inflation as the traditional measures it has typically deployed might not work effectively.

Forgo hot money:  The apex bank toyed with increased MPR to combat the high inflation rate but opined that doing so could lead to an even deeper recession despite the benefits of attracting foreign capital.

“The Committee noted that the likely action aimed to addressing the rise in domestic prices would have been to tighten the stance of policy, as this will not only moderate the upward pressure on prices but will also attract fresh capital into the economy and improve the level of the external reserves. It however, noted that this decision may stifle the recovery of output growth and thus, drive the economy further into contraction.”

In 2017, the CBN adopted a hawkish monetary policy stand of increasing MPR and offering interest rates as high as 18% via its open market operations bills.

  • The policy helped attracted billions of dollars in capital rising to as high as $13.4 billion in 2019. It dropped to as low as $332 million in the second quarter of 2020.
  • Foreign investors have basically stopped inflowing forex into the control as yields have crashed and repatriating it is now a major challenge.

The other option: Deciding against increasing MPR means the CBN had to consider a dovish policy, which requires that they cut monetary policy rates and intervene in sectors of the economy that can address the supply side factors it cited. Supply-side factors are price-related increases emanating from high production, storage, and distribution cost of finished goods and services meaning that price will remain high despite stable or lower demand.

“On easing the stance of policy, the MPC was of the view that this action would provide cheaper credit to improve aggregate demand, stimulate production, reduce unemployment, and support the recovery of output growth. Members were of the opinion that the option to lose will complement the Bank’s commitment to sustain the trajectory of the economic recovery and reduce the negative impact of COVID-19. In addition, the liquidity injections are expected to stimulate credit expansion to the critically impacted sectors of the economy and offer an impetus for output growth and economic recovery,” the CBN stated.

What this means: By dumping inflation targeting from the demand side, the CBN is betting that spending money on stimulus programs will pay off down the road as cheaper long term credit will reduce cost of goods and services and will eventually reflect in the lower inflation rate.

  • The CBN did not state where it sees the inflation rate and when it will drop to its new target by relying on supply-side management as strategy.
  • The downside of this strategy is that there is very little impetus for foreign investors to purchase CBN securities at very low-interest rates.
  • This shuts the door to the reliance of foreign portfolio inflows to shore up dollar reserves leaving us with investors who may want to return to the stock market.
  • If oil prices fail to pick up and foreign investor inflow is not forthcoming, then there will likely be heavy pressure on the CBN effectively worsening things.
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VP Osinbajo calls for provision of capital to grow businesses for long term

The Vice President has stated that the banking sector plays a crucial role in promoting increased & inclusive growth in Nigeria.

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There is need to further deepen the provision of capital that will allow businesses to grow over the long term. This was disclosed by Vice President Yemi Osinbajo during the Bankers Committee on Friday.

He commended the DMBs for their patriotic contributions to sustain growth but called for the need to further deepen the provision of capital that would allow businesses to grow over the long term.

“The banking sector plays a crucial role in promoting increased & inclusive growth in Nigeria. I commend #CBN for the forward-looking support for growth-related initiatives, especially under the economic sustainability plan,” he said.

What you should know

  • On Friday, VP Osinbajo had called for crypto regulation, knowing fully well the role crypto plays in the global financial ecosystem, as he opined that such disruption often made room for progress, according to Nairametrics.
  • Osinbajo also advised the SEC, and Central Bank of Nigeria to create a regulatory road map, while fully appreciating the stance of the CBN, Nigerian SEC, and law enforcement agencies on the possible abuses of crypto assets.
  • The vice president further stressed the important role cryptocurrencies would play in the coming years as they would most likely challenge traditional banking, including reserve banking, in ways the world hadn’t yet imagined. He thus stressed the need for Nigeria to be prepared for such a seismic shift.

 

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Sanwo-Olu says construction work on Fourth Mainland Bridge to start end of 2021

Governor Sanwo-Olu has disclosed that the foundation for the proposed 4th Mainland Bridge would be laid before the end of 2021.

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The Lagos State Governor, Mr Babajide Sanwo-Olu, has revealed that the foundation for the proposed Fourth Mainland Bridge would be laid before the end of the year 2021.

The execution of the bridge is geared towards improving the transport infrastructure and movement across the state.

According to a report from the News Agency of Nigeria (NAN), this disclosure was made by Sanwo-Olu during the 16th Executive/Legislative Parley, with the theme: ”A Consensus Agenda for Rebuilding Lagos”, organised by the Office of Civic Engagement.

He pointed out that the promise to construct the Fourth Mainland Bridge is not a political one.

What the Lagos State Governor is saying

Sanwo-Olu during the interactive session said, ”We did not politically promise Fourth Mainland Bridge but we are going to do Fourth Mainland Bridge.

”With your prayers and by the grace of Almighty God, we shall turn the sod and lay the foundation for the building and construction of that Fourth Mainland Bridge before the end of this year.

”We are on course and I am sure that the 37km ring road is on track, which will change the face of transportation and movement in Lagos,” the governor said.

The governor also disclosed that his administration was on course to complete the Blue Line and Red Line rail projects which were started several years back, saying the project will be completed and trains will move on the two rail lines before the end of his administration.

He said, ”It is a commitment that we have given to Lagosians and it is a commitment that we will see will come to fruition because we have finished the financial closure and we are excited about that project.’

Speaking at the event, the Special Adviser, Office Of Civic Engagement, Princess Aderemi Adebowale, said that the executive and legislature would discuss extensively the theme of the retreat, “A Consensus Agenda for Rebuilding Lagos”.

While saying that the discussion in the next 48 hours would help to fast track the rebuilding of the state, Adebowale said that they would delve deeply into issues such as Youth Leadership Role, Grassroots Development: a catalyst for growth, and Role of Social Media in Nation Building, among others.

What you should know

  • It can be recalled that the Lagos State Government has shortlisted 6 companies for the design, development, construction, operation, and maintenance of the Fourth Mainland Bridge.
  • This followed the government’s issuance of a Request for Qualification (RFQ) in February this year. The 6 companies were said to have completed the technical and financial capacity requirements.
  • Lagos State said it will announce the selection of the next stage in due course, even as the RFQ will be given to the pre-qualified bidders.
  • The Fourth Mainland Bridge is a 37.4km freeway subdivided into three sections namely Island Section, Lagoon Section and Mainland Section. It will commence from Abraham Adesanya Roundabout in Lekki through Ajah and Langbasa areas, crossing the Ado Badore Road before arriving at the Lagoon shoreline.
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Lagos to totally close Third Mainland Bridge again ahead of full reopening

Lagos State Government has announced a 24hour closure of the Third Mainland Bridge from midnight Friday, February 26.

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The Lagos State Government has announced that it will shut down the Third Mainland Bridge for 24 hours from midnight Friday, February 26 to midnight Saturday, February 27.

The expected total closure of the bridge is to enable the contractors to move the equipment used for its rehabilitation and maintenance ahead of the full reopening of both the Oworonshoki and Adeniji bound lanes open to traffic.

The disclosure is contained in a statement issued by the Lagos State Commissioner for Transportation on Wednesday, February 24, 2021.

Oladeinde, therefore, advised motorists approaching the Third Mainland bridge from Ogudu, Alapere and Gbagada to use Ikorodu Road, Jibowu and Yaba, as alternative routes, while Iyana Oworoshoki-bound traffic from Lagos-Island, Iddo, Oyingbo, Adekunle and Yaba are to use Herbert Macaulay Way, Jibowu and Ikorodu Road as alternative routes.

The Commissioner assured that traffic management personnel would be deployed along the affected routes to minimize the impact of the shutdown and address any traffic impediments during the closure.

He was also full of commendation for Lagosians for their cooperation during the prolonged repair works of the bridge and assured that the bridge is now safe for use by everybody.

What you should know

  • The Federal Government had on July 24, 2020, announced the partial shutdown of the Third Mainland Bridge for a period of 6 months for another round of rehabilitation works.
  • This was extended by an extra one month due to disruption caused by the #EndSARS protests last year, when the re-opening date moved to February 15, 2021.
  • The Federal Government later announced that the bridge, which was to reopen on February 15 will no longer be opened as work was expected to commence on the casting of the last expansion joint on the bridge before it will be finally reopened.
  • The 11.8km bridge, which was commissioned in 1990 by the then Military President, Ibrahim Babangida, is the longest of the 3 bridges connecting Lagos Island to the Mainland.
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