Currency swap deal: CBN to release framework this week
The Central Bank of Nigeria will this week, release the framework that will guide the implementation of the currency swap deal between Nigeria and China.
CBN governor, Mr. Godwin Emefiele, made this known while speaking to journalists after the Monetary Policy Committee meeting held at the apex bank’s headquarters in Abuja.
He said the $2.5billion agreement between the CBN and the People’s Bank of China will ease pressure on the foreign exchange market in Nigeria by the reduction in reliance on a third currency for trade settlement between the two countries.
He further disclosed that the CBN has given selected the Stanbic IBTC and Standard Chartered Bank as resettlement banks for the deal in Nigeria, while the Chinese government shortlisted the Investment and Commercial Bank of China, ICBC, for the transactions in China.
The CBN governor stated, “The currency swap deal is going to be positive for Nigeria, Nigerian imports and Nigerians; and we will ensure that we achieve that. It was a negotiation that was painstakingly done and I am optimistic that Nigeria will reap the positive impact from this.
“We do expect that by the time the framework is released, Nigeria will end up being the Reminbi hub of West Africa sub-region, because there are only three countries in Africa that currently enjoy the currency swap deal with China. They are South Africa, Egypt and Nigeria.
With the swap deal reached on 27 April 2018, Nigeria joins South Africa and Egypt which have similar deals with China.
On decisions reached at the MPC meeting, Emefiele said the committee retained interest rate benchmark at 14 percent to mitigate the impact on inflation.
He said “the objective of the policy stance will be to accelerate the reduction in the rate of inflation to single digit, promote economic stability, boost investor confidence and promote foreign capital flows.”
The MPC held the monetary policy rate (MPR) at 14.0 percent alongside all other policy parameters. Thus the credit reserve ratio (CRR) was also kept at 22.5 per cent; liquidity ratio at 30.0 per cent; and asymmetric corridor at +200 and -500 basis points around the MPR.
the committee considered the forecast of high liquidity injection in the second half of 2018, upward pressure of prices driven largely by substantial expansion of fiscal policy which will arise from the late passage of the 2018 budget, outstanding balance from the 2017 budget and the pre-election expenditure.”
He said the MPC reckoned that “tightening would ensure the mop up of excess liquidity, mindful that despite the moderation in inflation, the current inflation rate is still above targeted single digit and that real interest rate only turned positive in the review period.”
“The objective of the policy stance therefore would be to accelerate the reduction in the rate of inflation to single digit, to promote economic stability, boost investor confidence and promote foreign capital flows with complimentary impact on exchange rate stability.
“Conversely, the committee believes that raising the interest rate would however depress consumption and increase the cost of borrowing to the real sector. Moreover, such policy will make Deposit Money banks to reprise their assets,” Mr. Emefiele explained to journalists.