Central Bank of Nigeria (CBN) speaking through its Monetary Policy Committee (MPC) yesterday expressed concern over the possible inflationary impact the 2010 Appropriation Bill, continued implementation of the 2009 budget, the liquidity injection to recapitalise troubled banks as well as the eventual deregulation of the downstream sector of the petroleum sector might have on the economy.
Also, the MPC decided to leave the Monetary Policy Rate (MPR), which is the benchmark interest rate for banks, unchanged at six per cent in a bid to ease credit shortage caused by last year’s banking crisis.
The committee, however, left the asymmetric corridor of interest rates remaining at 200 basis points above the MPR and 400 basis points below the MPR. The key rate was last cut by 1.75 percentage points in April last year.
It also emerged at the end of the MPC meeting that the CBN will extend the guarantee on all inter-bank transactions up till December 31, 2010 even as the committee approved the Monetary Programme for 2010/2011 and the Monetary, Credit, Foreign Trade and Exchange Guidelines for fiscal years 2010/2011.
However, it noted that the apex bank had the discretion to terminate the guarantee on a case-by-case basis as part of the ongoing reform process.
CBN Governor Sanusi Lamido Sanusi, who briefed journalists on the outcome of the MPC meeting yesterday in Abuja, nonetheless said as development unfolds, the banking watchdog would take policy measures, if necessary, with a view to ensuring the achievement of price and financial stability.
“The committee took cognisance of the expansionary nature of the 2010 Federal budget, the continued implementation of the 2009 budget up to Q1 2010, expected liquidity injection/ inflow during the recapitalisation of the troubled banks and resolution of toxic asset problems and the eventual deregulation of the downstream petroleum sector and their possible inflationary impact.
In this regard, the MPC affirmed that it will closely monitor price developments in the near-term and will take appropriate policy measures, if necessary, to ensure the attainment of price and financial sector stability,” the CBN governor said.
Sanusi who read the Communiqué No. 67 of the 212th MPC meeting, however, added that on the other hand the committee recognised the need to maintain the growth trajectory of the economy to ensure that lending rates were not placed under further upward pressure and to provide sufficient liquidity during the resolution process of the banking system.
He said the committee further cautioned the Federal Government against being “overly optimistic” in its expectations about the outlook for the price of oil, and therefore welcomed the prudent benchmark used in the budget for 2010.
The Federal Government had proposed $57 per barrel of crude oil as the benchmark price for the 2010 budget.
As at yesterday, the price of crude of oil was $82 per barrel at the international oil market.
Sanusi said the committee’s advice was given based on the realisation that, “the current price of crude oil was being driven by the low value of the US dollar and the low interest rates in the US and these reverse crude oil prices may be lower than they are today.
“It expressed the hope that all stakeholders will give support to the Finance Ministry in keeping to this benchmark price and resist the temptation to push for an increase based on short-term consideration.”
The CBN governor said the committee also observed that the focus of the reform measures in the banking sector was to impact the overall efficiency and stability of the system in a manner that will ensure that banks play their appropriate roles as transmission channels for resources to the real sector.
This, he noted, was expected to “increase credit to the growth-enhancing sectors of the economy and therefore engender an all inclusive growth as well as avoid a recurrence of crises provoked by over exposure to speculative and non-value-adding ventures.”
Sanusi said the committee welcomed the optimistic growth forecast for 2010 by the National Bureau of Statistics (NBS) but noted: “The growth had been without employment owing to the stagnation in the manufacturing sector, and the failure to link growth in agriculture to industry.”
Given this scenario, he said the committee stressed the need for improvements in power and infrastructure to further enhance and sustain the growth process.
Consequently, he said the MPC welcomed the commitment of the Bankers’ Committee at its Enugu Retreat to provide the platform for increased financing for infrastructural development in support of economic growth.
“It restated its commitment to work with the government to create the enabling environment that will facilitate the financing of the real sector by the DMBs including strong advocacy for the fast-tracking of stalled reforms in the power sector, including review of the tariff regimes for gas and electricity and concessioning of the transmission company,” he added.
Meanwhile, Sanusi, who said the committee reviewed the economic conditions of 2009 and deliberated on the challenges ahead, said the external reserves stood at US$42.47 billion as at December 29, 2009, representing a decrease from the level of US$53.00 billion recorded at end-December 2008.
He said overall, the net outflow of foreign exchange had moderated significantly from US$5.6 billion, US$3.8 billion and US$931.93 million to US$138.37 million in the first, second, third and fourth quarters respectively.
He, however, stated that, despite the decline in the level of external reserves as at end-December 2009, the “Committee was satisfied that the level of reserves remained robust and significantly higher than initially projected at the beginning of the year.”
Sanusi said: “However, if the elevated price of crude oil in the international market in recent months is sustained, then, given improvement in output with peace in the Niger Delta, there is likely to be an improvement in the level of foreign exchange reserves. The strong reserve position enhances the bank’s ability to maintain exchange rate stability and protect the currency from speculative attack.”
Speaking further on the key domestic macroeconomic and financial developments, the CBN governor said provisional data from the National Bureau of Statistics (NBS) indicated that real Gross Domestic Product (GDP) grew by 8.23 per cent in the fourth quarter of 2009, up from 4.50, 7.22 and 7.07 per cent in the first, second and third quarters respectively.
He added that overall GDP growth for 2009 was projected at 6.90 per cent, which is significantly higher than the 5.98 per cent recorded in 2008.
Specifically, he pointed out: “The non-oil sector, as a group, remained the major driver of growth although this was complemented by the sharp increase in the growth of the oil sector GDP following the relative peace in the Niger Delta in the second half of the year.”
Sanusi said the committee observed that the higher than anticipated real output growth recorded in Nigeria despite the harsh international economic environment mirrored the trends in some sub-Saharan African countries and further buttresses the view that African countries were better able to withstand the global economic and financial crises relative to other regions of the world.
“The committee felt that on the basis of the robust economic growth recorded and the sustained implementation of appropriate policies, further improvement in output could be expected in 2010,” he said.
Reeling out figures on inflation, the CBN governor said, “the headline inflation rate, as measured by the year-on-year increase in the all item consumer price index, was 12.4 per cent in November 2009, up from 11.6 and 10.4 per cent recorded in October and September respectively.