• Retains interest rate at 12%
The Central Bank of Nigeria, CBN, Monetary Policy Committee rose from its two-day meeting yesterday retaining the Monetary Policy Rate, MPR, at 12 per cent with a corridor of +/-200 basis points around the midpoint even as it warned that military operations against Islamic insurgents in the North could pose liquidity risks for the economy
The MPR is the benchmark rate at which the CBN lends to other banks.
By a vote of 7 members to three, the Committee also left the Cash Reserve Requirement, CRR, unchanged at 12 per cent and Liquidity Ratio at 30 per cent, with the Net Open Position at 1.0 per cent.
This is even as the Governor of the CBN and Chairman of the Committee, Sanusi Lamido Sanusi, who briefed the media on major decisions taken at the meeting, projected that the emergency rule declared in the three North Eastern states may spur increased spending by government, with its attendant liquidity risks in the economy and hinted the apex bank might have to tighten the MPR if there are serious risks on the fiscal side. Sanusi said: "The recent military action in the North-East will result in additional spending.
Although the government has announced that there will be no supplementary budget, the Coordinating Minister for the Economy and Honorable Minister of Finance has already announced that there will be a drawdown on a Contingency Vote embedded in the 2013 budget to cover emergencies. "Overall, the Committee is of the view that government spending will constitute a major risk to the inflation and exchange rate outlook, thus advising prudence in monetary policy action at this time
"Personally, I don't think we should change rates for the sake of changing rates, I think we should respond to situations. The government will spend money, we will keep monetary policy very tight, if the spending gets excessive, we will respond appropriately. The risks if there is any from the fiscal side, is that we may actually have to tighten policy further, if this warrants. I don't think that at this point in time, a reduction in rates is not imminent."
Sanusi also said the Committee further noted that in spite of increased borrowings, yields on FGN bonds have been declining steadily, signaling the impact of increased inflows, while equity prices have been trending upwards, adding that the evidence does not, therefore, support claims of monetary policy being too tight.
According to him, the Committee was of the position that the principal risks to long-term stability could be addressed through diligent implementation of sound policies of fiscal consolidation and efficient sectoral policies underpinned by structural reforms since they are required to attract long term foreign capital inflows that would make the gains of monetary policy sustainable, and also support credit extension to the private sector players.
The CBN governor also disclosed that by December this year, Asset Management Corporation of Nigeria, AMCON, will pay off N1.1 trillion of its N3.6 trillion debt and urged Nigerians not to be worried about the operations of the company due to its huge debt portfolio.
He said: "AMCON has over N800 billion in assets and at the end of this year, it will build that up to over a trillion. AMCON has series one bonds maturing in 2013 and also series 2, 3 and 4 maturing in 2014. AMCON will issue a new bond of N3.6trillion, which we will invest in and that will be used to refinance our entire exposure at an interest rate of 6 per net over 10 years.
"So that means the other creditor to AMCON will be those holding series 5 bonds maturing in October 2014 and AMCON will build up balance from the sinking fund and pay them off in 2014. The result of this is that by October 2014, the only creditor to AMCON will be the CBN, every other person holding AMCON bonds will be paid off as at when due.
"This pay off will not be in the form of an injection of N1 trillion cash into the system. We have already compelled AMCON to convert them into securities. So these securities are going to change. So, what you're going to have is that by December, the balance sheet of AMCON will reduce by N1.1 trillion. And by October next year, the balance sheet will shrink by another N1 trillion, down to N3.6 trillion.
Sanusi said many initiatives were being undertaking at the structural side of the economy, pointing out however that for the nation to achieve inclusive growth, a lot more needs to be done like proper implementation of reforms in the power sector and the petroleum industry.
He explained that Nigeria cannot continue importing petroleum products and other consumer goods, including food, to expect inclusive growth.
According to him, monetary and fiscal policies could only provide a stable, environment but that in the final analysis growth would be engendered in the economy through a combination of structural and fiscal policy reforms.
National Mirror
Whatever it will cause let it cause it. We just have to eradicate whoever is threatening the peace and love in this country. We have to flush them all out!