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Currency-in-Circulation Fell 11.4% in First Quarter

 Amidst the growing fear of a likely liquidity glut in the run-up to next year’s elections, statistics made available by the Central Bank of Nigeria in respect of fiscal performance in the first quarter of the year showed that currency-in-circulation which was put at N1,574 billion, fell by 11.4 per cent at the end of the first quarter of 2014, compared with the decline of 7.6 per cent at the end of the corresponding quarter of 2013. This, however, contrasted with the 20.5 per cent increase at the end of the fourth quarter of 2013.

The CBN’s Economic Report for the first quarter which was posted on the apex bank’s website last week said the development, relative to the level at the end of the fourth quarter of 2013, was attributed, largely, to the 15.2 per cent fall in currency outside the banks.

The Governor of the Central Bank, Mr. Godwin Emefiele, who came into the saddle earlier in the month, had promised not to devalue the local currency although analysts fear the anticipated huge spending ahead of the general elections could weaken the naira.

Lagos-based research and financial advisory firm, Renaissance Capital (RenCap), had last week argued that in view of Nigeria’s dwindling external reserves as well as an anticipated elevated spending in the run-up to the 2015 elections, the Central Bank of Nigeria (CBN) may be compelled to devalue the naira in the short term.

The report titled: “Nigeria: Emefiele’s Policy Agenda,” insisted that in the short term, it would become unsustainable to continue drawing down on the reserves to defend the naira.
It stressed that price stability may be undermined by falling external reserves.
Nigeria’s external reserves stood at $37.034 billion as at Monday. The reserves, derived mainly from the proceeds of crude oil earnings have fallen by $12 billion since its post-global crisis peak of $49 billion in April 2013, to $37.034 billion as at June 9.

Emefiele last week unveiled his policy plans. He pledged to continue focusing on price stability and had also argued that Nigeria’s heavy dependence on imports and the pass-through of a weak naira to inflation implies that devaluation will undermine price stability.

With the continued fall in the figures of the currency-in-circulation as reflected in first quarter data in the CBN’s economic report, financial industry watchers said there were chances that Emefiele may realise his dream of containing the anticipated liquidity glut in the system.
Meanwhile, the report stated that total deposits at the CBN declined by 3.0 per cent to N6,814.9billion, in contrast to the increase of 0.2 per cent at the end of the fourth quarter of 2013.

The development, according to the report, reflected largely, the 8.5 and 3.0 per cent fall in the deposits of banks and Federal Government, respectively, which more than offset the 48.4 per cent increase in the deposit of “Others”.
“Of the total deposit, the shares of the Federal Government, banks and „‟Others‟ were N2, 763.8billion (40.6 per cent), N3, 462.5billion (50.8 per cent) and N588.6billion (8.6 per cent), respectively.

“Reserve money (RM), at N5,036.8billion, fell by 9.4 per cent, in contrast to the 19.6 per cent increase recorded in the preceding quarter. The development, relative to the level in the preceding quarter, was attributed to the significant decline in its currency and demand deposit components,” the CBN document stated.

Meanwhile, the total Standing Lending Facility (SLF) granted during the review period was N3,169.26billion with a daily average of N51.12 billion in the first quarter of 2014, compared with N1,445.54billion in the preceding quarter, indicating an increase of 119.2 per cent.
Interest paid on SLF in the first quarter of 2014 stood at N1.70billion, compared with N0.87 billion in the preceding quarter.
Total standing deposit facilities (SDF) granted during the review period was N24,037.26 billion with daily average of N387.7 billion, compared with N18, 088.37 billion granted in the fourth quarter of 2013. The cost incurred on SDF rose by 32.3 per cent to N9.42 billion, compared with N7.12 billion in the preceding quarter.

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