Reuters logo
UPDATE 2-Nigeria central bank acts to support naira, worried about govt spending
January 21, 2014 / 4:32 PM / 4 years ago

UPDATE 2-Nigeria central bank acts to support naira, worried about govt spending

* Key interest rate held at 12 pct for 14th time

* Cbank says committed to exchange rate stability

* Sanusi concerned about falling oil savings, leakages

* High spending ahead of elections next year a worry (Adds details, quote, background)

By Camillus Eboh and Joe Brock

ABUJA, Jan 21 (Reuters) - Nigeria’s central bank lifted the cash reserve requirement on public sector deposits held by banks on Tuesday, seeking to stabilise the naira and reflecting its concern about loose fiscal policy ahead of elections next year.

Governor Lamido Sanusi said the cash reserve requirement (CRR) would rise to 75 percent, from 50 percent from Feb. 4, the first increase since July. The bank kept its benchmark interest rate at 12 percent for the 14th time in a row, as expected.

Sanusi noted that inflation was stable within its 6-9 percent target band but said the monetary policy committee was concerned about a decrease in Nigeria’s foreign exchange reserves - used to support the naira - due to a depletion of crude oil savings and falling inflows from portfolio investors.

“The committee reaffirmed its commitment to a stable exchange rate regime, while urging the fiscal authority to provide support by reducing fiscal leakages and improving controls around oil revenue,” Sanusi said.

He said there was little more room to adjust monetary policy to maintain currency stability.

“Monetary policy is almost at its limit and needs support from the fiscal side in the form of excess crude savings if currency stability is to be maintained into the future,” he said.

Nigeria’s excess crude account, where Africa’s biggest oil producer saves oil export revenues over a benchmark price, contained around $3 billion in December, down from $9 billion a year earlier, despite a year of high oil prices.

Foreign exchange reserves were $43.26 billion as of Jan. 20, down 4.4 percent from 45.26 billion a year ago and Sanusi said the government had to do more to limit revenue leakages.

Sanusi has cut a controversial figure in recent weeks after a letter from the central bank to President Goodluck Jonathan complaining that billions of dollars of government oil revenues had gone missing was leaked to the media last month.

These “leakages” are reducing foreign exchange reserves and limiting the amount the central bank can do to support the naira and control inflation, Sanusi says. His first term ends in June and he has said he will not seek another.


Despite strong economic growth of around 7 percent last year and high interest rates, Nigeria has to spend billions of dollars a year in foreign exchange reserves to support the naira because its economy is hugely reliant on imports, while money laundering adds to local demand for U.S. dollars, Sanusi says.

While the regulator has succeeded in supporting the naira during its twice weekly official forex sales, the currency has weakened on secondary markets.

The naira was stable on the official market in 2013 but depreciated 2.34 percent in the interbank market and 7.84 percent at bureau de change outlets, due to strong demand for dollars.

Sanusi is concerned there could be a further spike in demand for dollars due to high spending ahead of national and presidential elections next year. Although the finance minister has proposed a tighter budget than last year to lawmakers, additional spending on political patronage ahead of the vote is expected.

Sanusi said he may act in the coming weeks to address concerns the regulator has over the wide gap between the official foreign exchange rate and the much weaker naira being traded at bureau de change outlets.

The local currency has hovered around 159-160 against the dollar so far this year but has traded nearer 170 at bureau de change (BDC) outlets, creating an opportunity for speculation.

“The central bank (will) take immediate steps to address the supply and demand imbalance in the BDC segment while maintaining its focus on anti-money laundering,” he said.

Nigeria’s central bank limited the amount of dollars that bureau de change firms can buy from banks to $250,000 a week last year in order to curb demand for the U.S. currency.

At Tuesday’s meeting the central bank left the lending corridor around its benchmark rate at 200 basis points, kept the cash reserve requirement on private sector deposits at 12 percent and maintained a liquidity ratio of 30 percent. (Additional reporting by Chijioke Ohuocha; Writing by Joe Brock; Editing by Susan Fenton)

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below