Godwin Emefiele CBN Governor

Lack Of Long Term Capital, Bane Of Housing Sector – CBN

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The governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele, has identified the non-availability of long term capital to boost mortgages as the major challenge crippling the country’s housing market.

Emefiele, who stated this in Abuja, yesterday, at the opening of a three-day African Union for Housing Finance (AUHF) conference, pointed out that mortgages were not run by credit or short-term investment.

He also cited the high cost of building materials which, he said, had led to the growing spate of unaffordable housing in the country.

AUHF is a 55-member association of mortgage banks, building societies, housing corporations and similar organisations working on the mobilisation of funds for shelter and housing on the African continent.

The AUFH conference, with the theme, ‘Housing and Africa’s Growth Agenda’, is organised in collaboration with the Nigerian Mortgage Refinance Company (NMRC).

Emefiele, who was represented by the bank’s director, Other Financial Institutions, Dr Ahmed Abdullahi, further stated that registering and enforcing property rights was also hindering effective financing in the sector.

He noted that the development of Nigeria’s housing market is key to growing the economy and the Gross Domestic Product (GDP).

Comparing Nigeria and other African housing markets, he said: “You will find out that the market is less developed because the contribution of housing market to the GDP is less than one per cent,” adding that the housing market in the United States represents 80 per cent of the country’s GDP.

The CBN governor revealed that the single largest financial asset class worldwide is in the United States housing market which, he said, is more than the country’s capital market.

On his part, the chief executive officer of NMRC, Prof Charles Inyangete, noted that the need for affordable housing globally is estimated to be 400 million units and said the goal of the company was to raise long-term money in the capital market and to use it for refinancing mortgages.

He said the company is committed to providing affordable housing by reducing and extending mortgage rates as well as guarantying lower deposits.

Also speaking, the minister of power, works and housing, Babatunde Raji Fashola, noted that housing Nigeria’s 180 million population is an arduous task that should not be left in the hands of government alone, especially now that government’s revenue and the overall economy is under pressure.

While decrying the absence of funds to support the construction and mortgage sectors, he admitted that the cost of housing stock is beyond the reach of the majority of Nigerians.

Fashola, who was represented by the head of PPP in the ministry, Arch. Eucharia Alozie, stressed that many years of inadequate investment and poor maintenance culture left Nigeria with a significant housing deficit.

Meanwhile, ahead of the 252nd meeting of the Monetary Policy Committee of the Central Bank of Nigeria (CBN) holding next week, analysts say they want the apex bank to maintain the status quo despite the rising inflation.

The MPC, at its last meeting in July, raised benchmark interest rate by 200 basis points, from 12 per cent to 14 per cent, and increased Standing Deposit Facility from seven per cent to nine per cent, in a move that surprised local investors and analysts who had expected the apex bank to favour growth above luring foreign investments into the country that is currently facing recession.

The governor of the CBN, Godwin Emefiele, in justifying the move, said it was to create liquidity in the foreign exchange market through an inflow of foreign portfolio investments into the country. The interbank end of the foreign exchange market had been under pressure since the apex bank floated the currency, allowing market forces to determine the value of the naira.

However, liquidity had been a major challenge as the demand for foreign currency far outweighs the supply, making the apex bank a major foreign exchange supplier in the market.

While noting that inflation, which is one of the factors that the MPC considers in making its decision, is on the rise, the managing director and chief executive of Financial Derivatives Company Ltd, Bismarck Rewane, said with month-on-month inflation numbers declining, the MPC may be inclined to “slash interest rates and complement the fiscal expansionary policy of the federal government.”

He said he did not expect the apex bank to further tighten monetary policy by increasing benchmark interest rate but rather consider lowering it.

Rewane also projects that the MPC will cut cash reserve requirement to 20 per cent to allow banks have access to more funds. CRR is currently put at 25 per cent.

Analysts at FSDH Merchant Bank, however, expect the MPC to maintain the status quo while opening avenues through which liquidity can be pumped into the system to help take the country out of recession.

Inflation, which has risen to 17.13 in July, is expected to further rise in August, as foreign exchange scarcity continues to influence the cost of goods and services.

 

How Africa’s Central Banks can survive —IMF

The International Monetary Fund (IMF) has listed seven points central banks in Sub-saharan Africa must follow to survive the economic crisis in most of the countries.

The IMF also said that it is available to help economies in the region at any time it is called upon.

Mitsuhiro Furusawa, IMF deputy managing director, said central banks in the region had been facing some challenges that could do with some help from IMF.

“The IMF is fully committed to providing any assistance that the Kenyan authorities and those across Africa may need to continue upgrading the monetary policy frameworks to address the challenges of the future,” he said.

Speaking on African central banks, he said the central banks should have a clear legal mandate of policy goals and operational independence to pursue these goals and that primary, medium-term objective of monetary policy should be price stability.

“Monetary policy ultimately has a limited capability to directly influence real variables such as output growth over the long-term.

“Third, the central bank should make a medium-term numerical inflation objective the cornerstone for its monetary policy actions and communications. A transparent inflation objective provides a simple benchmark against which to measure performance.

“Fourth, the central bank should carefully take into account the implications of monetary policy adjustments for financial stability. However, this should not come at the expense of undermining the central role of the medium-term inflation objective. Any significant erosion of central bank credibility can change inflationary expectations for the worse. This, in turn, could have an undesirable impact on real activity and financial stability.

“Fifth, the central bank should have a clear and effective operational framework, by setting an operating target and clearly communicating the link between such an operating target and the medium-term inflation objective.  This supports the functioning of money markets.

“Sixth, the central bank should have a transparent, forward-looking monetary policy strategy that reflects timely and comprehensive assessments of the monetary transmission mechanism.

“Seventh, central bank communications should be transparent and timely. This helps reduce uncertainty, improves monetary policy transmission, and facilitates accountability. The goal must be to build credibility,” he stated.

Furusawa said “at times there may appear to be a conflict between the goals of low inflation and economic growth but we have learned from hard experience that high inflation distorts the private sector’s savings and investment decisions — leading ultimately to slower growth.”

“That is why countries have increasingly placed greater emphasis on price stability, and many of them have made low and stable inflation the primary objective for monetary policy.

He further noted that new central banks lacked independence from their governments, saying: “they were directed to finance large fiscal deficits. There were pervasive foreign exchange and interest rate controls.”

“The weaker relationship between money and inflation, and the changing financial landscape, are again calling on African central banks to adjust their strategies.

“Ghana, South Africa, and Uganda have adopted formal inflation-targeting regimes. Other countries with flexible exchange rate regimes are de-emphasising the role of monetary aggregates and incorporating elements of the monetary policy practices of industrial and emerging market countries,” the IMF chief emphasised.

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