Mallam Sanusi Lamido Sanusi, CBN Governor
The Central Bank of Nigeria (CBN) Thursday said the planned refinancing of the Asset Management Corporation of Nigeria (AMCON) N5.7 trillion zero coupon bonds would not distort price stability in the economy.
The CBN Governor, Mallam Sanusi Lamido Sanusi, said this in an interview with journalists on the sideline of the first National Risk Management Conference titled: “Our Ever-changing Risk Context: New Channels, New Risks?” organised by the CBN in Lagos.
The conference was attended by officials of the CBN, most banks’ chief executives and other operators in the industry.
AMCON had at the weekend disclosed plans to refinance the bonds maturing from December 2013 to November 2014.
This would be done in conjunction with the CBN.
Sanusi disclosed that by December 2013, AMCON’s N1.7 trillion bonds would be refinanced, while the remaining N4 trillion would be refinanced by the end of next year.
"By December, AMCON will be indebted to only the CBN," Sanusi said.
Sanusi explained: “Today, AMCON is holding about N800 billion in treasury bills. So, we are not creating any new money. At the point it (AMCON) pays off, it will simply hand over these treasury bills to the banks, take these bonds and cancel them all. All that is happening is that the balance sheet of AMCON is shrinking and that reduces its liabilities and assets holdings.
“We are not pumping cash into the system; we are not creating new securities and we are not going to have more liquidity. What may happen, which is not likely, is the possibility of tightened liquidity. But because liquidity ratio is about 70 per cent and most of those AMCON bonds are not being used for repos, even though that can be used.
“So really in terms of money supply, we don’t think there is going to be any major impact on the liquidity in the system. There might be an impact in the total money supply because of the reduction in credit to the private sector, but we are looking at all the implications and when it is time to pay, the central bank will decide how much of it should be in form of securities, if we should issue some special securities to mop up the money and if we are going to sterilise the money for a year or six months. This will all fit into our monetary policy stance.”
Responding to enquiry on when AMCON is going to wind down its operations, the CBN governor said: “It is clear, AMCON winds down as it pays its debts. Clearly from where we are, we have a maximum of 10 years from 2014. We think it will be able to pay down before then. But on the conservative side, we have about 10 years.”
Sanusi, however, informed those looking forward to a cut in the Monetary Policy Rate (MPR) that there would not be any reduction in interest rate in the short-term as a result of increased government spending.
He also cited preparation for the 2015 elections by politicians as another factor that could make the CBN not to change its restrictive monetary policy stance.
In fact, Sanusi stated that there could be a higher risk of increasing the Cash Reserve Ratio than reducing it, saying the apex bank would respond in the event of any elevated spending.
“Everywhere in the world, if you have an election, that is when government spends more because at that time, you will have political office holders wanting to deliver dividends, they will want to show reasons why they should be re-elected. So the central bank governors all over the world know that election cycles are very difficult for monetary policy."