CBN Plans to ‘Mop Up’ Excess Liquidity after Passage of Budget

CBN Plans to 'Mop Up' Excess Liquidity after Passage of Budget

CBN Plans to ‘Mop Up’ Excess Liquidity after Passage of Budget

The Central Bank of Nigeria (CBN) has disclosed it may conduct ‘Mop Up’ Excess Liquidity which may be a responsibility to assuage inflation in the Nigerian Naira, the ‘Mop Up’ Excess Liquidity exercise would take place after the 2016 budget is passed to stabilise the domestic currency, and facilitate the growth of the external sector.

Deputy Director of Financial System Surveillance, Okechukwu Nnanna, who disclosed this at the weekend, said the move was the CBN’s likely course of action to stabilise the external sector.

This was as a financial services firm, Afrinvest, argued that despite the move by government to borrow from multilateral sources up to N900.0billion to partially fund the N2.2trillion deficit, it would still require some adjustments to domestic macroeconomic policies to align with external sector realties.

According to the investment research firm, this may not be enough to stimulate foreign capital flows and improve the capital account if current account is not stabilised by both short term flexibility in exchange rate management and medium term efforts to boost real sector productivity.

It explained that the fundamentals of Nigeria’s external sector balance haven’t changed much with foreign exchange (fx) inflows unable to match domestic demand, while currency restrictions subsists in the interbank market.

“Cash backed interbank intervention by the CBN fell to a year low of US$972.7billion in January while monthly foreign currency inflows into the system fell to a 7-year (on a Y-o-Y basis) of US$6.6billion in December 2015, highlighting the FX shortages in the economy,” stated.

It further hinted, “We view the appreciation of the naira at the unregulated segments of the market as momentary and speculative pressures may resume if the status-quo on exchange rate non-adjustments and FX restrictions are maintained.”

Meanwhile, the CBN called for diversification of sources of foreign exchange inflow into the country. An authoritative source at the apex bank in Lagos on Sunday that scarcity of the dollar was responsible for its current slide at the black market.

He said that the CBN had not devalued the naira, but scarcity of foreign currencies was responsible for the depreciation of the naira at the parallel market.

According to the source, the CBN has always advocated for diversification of sources of foreign exchange into the country rather than depending solely on sale of crude oil.

He said that the apex bank had taken several initiatives to shore up the value of the naira by increasing productivity in the country.

The source said that the CBN realised that restricting accessing to foreign exchange for the importation of food items would not automatically translate to their local production.

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