27 November 2014, Abuja – The newly appointed Deputy Governor of Central Bank of Nigeria, Dr. Joseph Nnana, on Wednesday said that the apex bank had not devalued the naira.
Rather, he said the CBN merely announced the exchange rate in compliance with market forces.
He said, “The Central Bank did not devalue the naira so to speak, it only followed the three principal markets in Nigeria -the official, the retail and the parallel.”
He explained that the CBN would not pursue the policy permanently, adding that it would elapse with the ongoing transformation programme in the agricultural sector, which would make it possible for products to be exported to earn more foreign exchange.
He said, “We better do it now than later when we will have import control which would bring about essential commodity crisis. Nigerians are always in a hurry. Let us give the central bank time to pursue a policy that will be a blessing to all of us. I commend the CBN for being proactive with the policy.”
Nnana said another way to wriggle out of the economic crisis was to recapitalise development banks with a view to encouraging them to lend at controlled interest rates.
He said, “My take is that since we have development banks such as the Bank of Industry, Nexim Bank and Bank of Agriculture, we can recapitalise all of them and mandate them to lend at a fixed interest rate for the entrepreneurs and other investors willing to invest in the Nigerian economy.
“If we recapitalise the BoI and we tell the Managing Director that we are giving him this money, and ask him to lend at a specific interest rate, he will oblige us because it is the tax payers money.
“We cannot force the management of a private bank to lend at a fixed rate because they will take into consideration the risk premium especially when most people borrow without the intention of repayment.
“The non-performing loans in the country are very high and bank balance sheet is landing on non-performing loan. We have passed the era of fixed interest rate in the country.
He also called for caution on the issue of interest rate and exchange rate administration, adding, “We just have to make up our minds as a nation, as to what we really need bearing in mind that we cannot have the three things together.”
Nnana said the nation could not have a low interest rate, low inflation and strong currency at the same time.
He said, “It is when we make up our mind that the CBN will pursue the policy for us. It is a delicate balancing act.
“We should appreciate the difficulty in which we found ourselves. Since 1973, our economy has become dysfunctional because everybody depends on the oil sector; our manufacturing sector is not real because we merely assemble products.”
He stressed the need for policymakers to be cautious while “navigating the unholy trinity that is the relationship between interest rates, exchange rate and inflation.”
He said, “Low interest rate is desirable particularly in a society where the marginal propensity to save is higher than the marginal propensity to consume.”
Nnana said the bank could not lend what they did not have and faulted the belief that the country could have a strong exchange rate, low inflation and low interest rate at the same time.
He said, “There should be a trade off which is recognised in global economy. We have to decide what we want. If we desire to have low interest rates in order to grow the economy, what are the other constraining factors which are difficult to realise growth?.”
– The Punch