Deputy CBN Governor says naira not devalued

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.
Nnana stated this when he appeared
for screening before the Senate
Committee on Banking, Finance and
other Financial Institutions.
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?.”