Following the Monetary Policy Committee (MPC) decision to raise the cash reserve ratio (CRR) of commercial banks 500 basis points to 27.5 per cent, from 22.5 per cent, some analysts have predicted that the latest monetary measure will not have a negative effect on the earning of banks.
Speaking at the Breakfast Session on Re-risking the Nigerian Financial System in Lagos, Coronation Merchant Bank’s Head of Research at the bank, Guy Czartoryski said: “The initial fear by the public was that the action is going to curtail the result of banks but I don’t think it will have a substantial effect.
“It is not the end of the world for the banks. They have a positively floating yield curve and they can use that. If you take a deposit at one or two percent and lend at 8 percent, you can make some money.
“There is some squeeze on the liquidity of banks but I think it is limited. Let’s not over emphasis the effect of that. It is an effective method of liquidity management because the CBN felt there is a lot of money coming from the OMO market and they needed to sterilize that”, he added.
Also speaking on the possibility of a naira devaluation, the industry expert noted that with an expected inflow of about $6 billion coming in from bilateral loans, Eurobond and foreign portfolio investors this year, it is not expecting a devaluation of the naira, as it urged that the Central Bank of Nigeria keep the Open Market Operations market attractive.
Czartoryski said to continue to attract foreign exchange from FPIs, the apex bank has to keep the yields on OMO high to ensure that returns on the instruments are comparable to other markets like Ghana and Kenya.
“You need to keep your OMO rates as high as theirs or even higher”, he said.
In her remarks, Head of Trading and Financial Instruments at the bank, Iyobosa Sorae, while noting that the CBN had put in place strategies to ensure that the value of the naira remains stable, said “if you look at where we are today and if you look at the outflow on month on month basis, we are well positioned to weather this year.
“Eurobond that is going to be issued, should happen probably before the end of the first quarter or early in the second quarter and that is an add-on to the reserves. We can also decide to take bilateral loans from the World Bank or the IMF and if we are taking loans it means the foreign reserves will comfortably be sitting at $40 billion and if we get to $40 billion we don’t see a devaluation and it is based on these statistics that we are saying for this year the CBN is on the right foot on the currency.”