Sanusi: Monetary Conditions Not Tight Enough

…CRR on private sector deposits may be raised to 15%

By Obinna Chima

As some Nigerians continue to lament the tight monetary policy regime in the country, Central Bank of Nigeria (CBN) Governor, Mallam Sanusi Lamido Sanusi yesterday said monetary conditions are not tight enough in view of the revenue leakages, declining external reserves as well as headwinds from the global market.

Sanusi, who said this while delivering a lecture titled: “What Next?” at the 30th anniversary lecture of the law firm of Udo Udoma & Belo-Osagie in Lagos, also disclosed plans to raise the Cash Reserve Requirement (CRR) on private sector deposits to 15 per cent.
According to the CBN governor, the CRR on public sector deposits may also be increased to 100 per cent.

The CRR on private sector deposits is presently at 12 per cent. The Monetary Policy Committee (MPC) had at its last meeting increased the CRR on public sector deposits in banks to 75 per cent, from 50 per cent.

Speaking further, Sanusi maintained that the central bank does not want the price stability that had been achieved over the years to be destroyed.

He explained: “We cannot take this stability for granted, it is very fragile and the way to keep it is to put in those controls, stop the theft, stop the leakages and build up the reserves. Then we can have low interest rates and low inflation.

“At the last MPC meeting I was the minority because I wanted to increase private sector CRR as well to 15 per cent because I feel monetary conditions are not tight enough.

“What has happened since then has proved me right because the naira is still under pressure. I still feel we should have gone up to 15 per cent of private sector CRR and 100 per cent of public sector CRR. There would be costs, but the costs of not doing it are much higher.”

The Naira depreciated to N164.70 to a dollar at the interbank market Wednesday, its lowest value in that segment of the market in the last two years.

Justifying the recent CRR hike, Sanusi said a situation where the government has trillions of naira in the banking industry earning zero per cent interest and then turns around and borrow that money from same banks at about 14 per cent was not healthy for the system. He noted that the monetary policy measure would make public sector deposit unattractive and improve financial intermediation.

According to him, the biggest problem the CBN faces from the macro-economy is the threat to the exchange rate at a time when oil prices are in excess of $110 per barrel and when the country has current account surplus.

“If we do not have the buffers and if exchange rate is under pressure, then it is better to tighten to support the currency. So, the central bank is not looking for a strong naira. We are not looking for a weak naira; we are simply looking for a stable naira.

“In a normal world, I should be resisting an appreciation of the currency today and not fighting depreciation. We are having a problem that is entirely home-grown. People are literally taking crude oil physically; refining it, take it out in vessels and not paying for it, plus all other leakages in the system,” he declared.

Sanusi expressed concern that without a drop in crude oil prices, without a major increase in government spending, the Excess Crude Account had reduced significantly from $11.5 billion to $2.5 billion in one year.

He added: “You can’t have a first class law firm, a first class central bank or a first class business in a rotten environment. So we have to stop sweeping our little corners alone, you sweep your corner and if anybody has not swept his, you look at it and tell them to go and clean the mess.”