THE Central Bank of Nigeria (CBN) may adopt a mixed bag of depreciation of the naira and further tightening of the Cash Reserve Requirement (CRR) on public deposits at its March 17 meeting to stabilise the monetary system, Managing Director, Financial Derivatives Company (FDC) Limited, Mr Bismarck Rewane has said.
In a preview of the financial and economic outlook in the weeks ahead, Rewane said the CBN is in between a rock and a hard place as the options for the Acting CBN Governor, Mrs Sarah Alade are narrow and hard.
He indicated that the correction at the stock market would continue in the weeks ahead. The Nigerian Stock Exchange (NSE) is trailing with a year-to-date return of -5.22 per cent.
According to him, the Monetary Policy Committee (MPC) of the CBN will have to adopt a mixed bag this month, including allowing the naira to slide by three per cent and pushing up the CRR on public deposits from 75 per cent to 100 per cent.
Rewane noted that the apex bank is faced with two scenarios for stable naira and external reserves, adding that all options would remain unattainable if the oil revenue leakages continue.
Under the first scenario, the MPC could increase the Monetary Policy Rate (MPR) from 12 per cent to 13 per cent, increase the private sector CRR from 12 per cent to 15 per cent, increase the public sector CRR to 100 per cent and then leave an option to increase liquidity ratio in May.
Under the second option, which Rewane singled out as possible, the apex bank will allow the naira to depreciate by N5 or three per cent to N162 while increasing public sector CRR to 100 per cent.
“She may have to depreciate the currency by approximately five per cent at the March 17 meeting,” Rewane said referring to acting CBN Governor.
According to him, with external reserves at $39 billion and likely to decline further, options are narrow and choices are hard.