Falling oil prices, no end in sight, CBN warns
The end may not be insight to the low revenue generated from the nation’s crude oil, as the Monetary Policy Committee of the Central Bank of Nigeria predicts a prolong plunging of oil price in the global market.
A communiqué at the end of the committee’s meeting in Abuja said unlike the 8 months period of low oil prices witnessed in 2005, the current situation was expected to continue over a longer period.
The World Bank in its Commodity Markets Outlook, last week, lowered its 2016 forecast for crude oil prices to $37 per barrel from the $51 per barrel earlier predicted in October.
Reading the communiqué, CBN governor, Mr. Godwin Emefiele, said the prolonged oil price crash may necessitate hard and uncomfortable choices for Nigerians, adding that certain trade-offs would have to be envisaged and accommodated by Nigerians as oil prices had been on a steady decline.
The committee however gave the assurance that given sound and properly coordinated monetary, fiscal, and external sector policies, there is wide room for optimism about the medium to long term macroeconomic prospects for the Nigerian economy, especially, given the clarity in the policy direction of the administration, the various interventions in the real sector; gradual improvement in the power sector, and the reinvigorated fight against corruption.
He said, “The committee observed that the last episode of low oil prices in 2005 lasted for a maximum period of eight months. However, the current episode of lower oil prices is projected to remain over a very long period.
“Consequently, it is imperative to brace for a longer period of low government revenues from oil sources, which would necessitate hard and uncomfortable choices as the economy transits to more sustainable sources of revenue, consistent with the economic realities and strategic objectives of the country. In the circumstance, certain trade-offs must be envisaged and duly accommodated.”
He said there is the need for consistently sound and coordinated macro economy policy. Emefiele said the central bank was currently refining the framework for foreign exchange management in order to ensure a more effective and liquid forex market.
On the Monetary Policy Rate, the governor said the committee decided to unanimously retain it at the current 11 percent that was set in November 2015.
The committee also retained the Cash Reserve Requirement at 20 percent and the liquidity ratio at 30 percent, with the asymmetric corridor at +200 basis points and -700 basis points.
Emefiele explained the decision to retain the rates was taken in order to ensure that the objective of easing lending to the real sector of the economy was achieved.
He regretted that despite earmarking some liquidity to Deposit Money Banks at the last MPC meeting to encourage them to lend to the real sector of the economy, the banks are still not lending much to the agriculture, small and medium enterprises and the real sector of the economy.
“You will agree with me that two month is still too early to begin assess the impacts but I am optimistic that the banks will heed this advice because this liquidity will continue to stay with CBN until they decide to work with us in these directions.”
The governor said the CBN would continue to use moral suasion to encourage the DMBs to support financing for targeted lending to the real sector as well as agriculture, solid minerals and Small and Medium Enterprises sectors of the economy.
On the possibility of devaluing the naira in view of the increasing pressure on the currency, the governor said there were no immediate plans to do so. He said the central bank was working on a number of scenarios under different crude oil prices, noting that discussions at management and monetary policy committee levels would still continue.
Emefiele said, “We don’t have any immediate plan to devalue the naira. However, we are already working on different scenarios; the models are being worked on. We have them and as much as possible, we will look at scenarios under different crude prices and we will continue to discuss at management and monetary policy committee levels.