CEM REPORT, ECONOMY | The Central Bank of Nigeria (CBN) has said it will continue to tighten monetary policy in the year 2023.
This is as the bank said redesigning of banknotes will make monetary policies more effective and encourage a cashless economy.
The CBN Governor Godwin Emefiele, speaking at the 57tht Bankers Dinner, held at the Eko Hotel in Lagos stated that the Economic Outlook for the country in 2023 remains prosperous.
He noted that monetary policy will focus on price and exchange stability while policy stance will remain tight to control inflationary pressure.
He explained that decline in the nation’s oil proceeds occasioned by oil theft and further tightening of global financial market conditions occasioned by the Russia-Ukraine war, have weighed heavily on the nation’s foreign exchange market noting that the downward short-run trend of Nigeria’s external reserves reappear at the beginning of 2022.
He added that high imports have continued to pressure foreign reserves.
“After recovering from $3.7 billion in March of 2020 to $41.6 billion in September 2021, official reserve fell to about $3.7 billion over 2022, an approximate 6.4 month import cover in October remain above the traditional 3-month threshold.
“This reflected a massive demand pressure mounted on foreign exchange market as import appetite remains high vis-a-vis available foreign reserves.”
He added that “during this period foreign exchange market development exacerbated considerable pressure on the naira to dollar rate notwithstanding the effort of the CBN to the exchange rate over the medium term.”
He noted that demand pressure at the foreign exchange market ”moved the exchange from N281/$1 at the end of 2020 to N440/$1 today.”
The apex bank governor explained that current development in the global and domestic economy indicate that inflation pressure is expected to worsen and become more persistent.
He noted that the upsurge in global inflation is expected to reach a record high in advanced countries, adding that envisaging global monetary tightening is threatening global macroeconomic conditions.
Explaining Emefiele said, “monthly capital flow in Nigeria year-to-date is less than one-third of its value in 2021, having declinedbfr8k $1.37 billion monthly to $580 million in 2020.”
He added that “it is imperative for us to ensure innovative inward-looking structural policies that will ensure sustainable ways of adequately insulating the economy from the volatility associated with foreign portfolio flow.”
On policies to curb inflation, the apex bank governor explained that the currency redesign is expected to flatten the inflation curve.
He explained that hoarding of bank notes has continued to increase currency in circulation noting that the trend must be curved.
“Analysis of key challenges primarily indicates a significant hoarding of banknotes as over 85% of currency in circulation were held outside the banking industry.
“This is even as currency in circulation doubled from an estimated 1.46 trillion in December 2015, to 2.26 trillion in December 2022.”
Furthermore on the redesign Emefiele highlighted that while the redesign will make monetary policies efficacious, it will also curb hoarding of currencies in houses and banditry noting that “people find it comfortable to carry naira cash into the bush.”
While stating that the redesign will quicken the attainment of a cashless economy as it will be complemented by the increased minting of the e-naira.
Additionally, he stated that Nigerians have refused to embrace a cashless economy or cashless system of doing business.
He noted that with the redesign less naira will be in circulation.
While encouraging Nigerians to embrace the redesign the CBN governor said the redesigning the currency has been in the pipes for long but has since faced several oppositions adding that an understanding between the CBN and Federal Government brought the redesign to reality.
“There is no country in the world today that has allowed it’s currency to remain unchanged whether through what you call restructuring or repainting, it is not possible. What you’ll find in any country is that maximum, within 5 to 8 years all currencies in circulation will gradually be withdrawn and new ones will be issued for a good purpose.
“I want to warn you that if you are carrying cash, the one that is not painted I’ll advise you to take it to your bank and colour the one that has blue, green, or red. If you refuse after 100 days that is January 31st, 2023, only the painted ones will be useful. You’ll have to burn your unpainted notes.”
The governor noted that the nation’s “monetary policy decision will remain balanced, resource-driven, adequate and supportive of the real sector, adding that the CBN will act and adjust the rate according to unfolding conditions and output.”
He also said, the policy measure established is expected to fall inflation steadily to less than 15% through the end of 2023.
Furthermore, Emefiele said the non-oil sector GDP is projected to remain positive till early 2023 while noting that projected inflation is expected to remain elevated and above the 12.5% threshold.
“From 3.54% in Q2 of 2022, growth is projected to attain 3.7% during Q3 and 3.47% during Q3.”
He further affirmed the commitment of the apex bank to invent innovative policies to manage the demand and supply of foreign exchange.