MONDAY, 20 SEPTEMBER 2010 01:00      

Consumer inflation rose to 13.7 percent year-on-year in August from 13.0 percent the previous month, the National Bureau of Statistics said weekend. Growth in food prices, which form the bulk of the inflation index basket, also rose to 15.1 percent year-on-year from 14.0 percent in July.

The Monetary Policy Committee (MPC), which has repeatedly voiced concern about inflation, is due to meet on Tuesday to review the benchmark interest rate, which has been on hold at 6.0 percent for more than a year. Sanusi Lamido Sanusi, Central Bank of Nigeria (CBN) governor, told Reuters on Thursday that weak bank lending was a “major worry” and that although he wants single-digit inflation by the end of the year, the central bank will do nothing to jeopardise economic growth.

“Bank lending has not been growing as fast as we would like it to grow. So as far as upside risk to inflation, it is not very high,” Sanusi said in the interview. He noted, however, higher government spending, with elections due next January, and the establishment of an Asset Management Corporation of Nigeria (AMCON) to soak up bad bank loans should help put more money into the system, meaning the inflation risk was not zero.

Meanwhile, inter-bank lending rates climbed to 4.0 percent on average last week from 1.66 percent penultimate week after large cash withdrawals by state energy company, NNPC, drained liquidity from the system, traders said weekend. The secured Open Buy Back climbed to 3.5 percent from 1.50 percent, 75 basis points above the Standing Deposit Facility (SDF) rate and 4.5 percentage points below the 6 percent central bank benchmark rate. Overnight placement rates rose to 4.0 percent from 1.75 percent, while call money closed at 4.5 percent compared to 1.75 percent. Dealers said the withdrawals by the Nigerian National Petroleum Corporation (NNPC) and funding for foreign exchange purchases at bi-weekly official auctions helped drain liquidity in the system, pushing up the cost of borrowing among banks.

The opening balance in lenders’ accounts with the central bank stood at about N172 billion on Friday and bankers expect they will be further depleted early this week because of forex purchases and bonds auction.“We expect the cost of funds on the inter-bank to spike further early this week as market liquidity continues to thin out,” one dealer said. Dealers said anticipated fresh cash inflows from the monthly budgetary disbursals to government agencies could hit the system on Wednesday, providing temporary relief that could be eroded by payments on bonds and outflows to foreign exchange purchases.

This is as the Federation Account Allocation Committee (FAAC) distributed N433.7 billion from federal accounts to the three tiers of government for August, up 7 percent on the previous month, the accountant general said weekend.

“The total revenue distributable for the month including VAT is N433.698 billion,” accountant general of the federation, Ibrahim Dankwambo, told newsmen after a meeting of the Federation Account Allocation Committee (FAAC) responsible for the disbursals.The monthly distributions have a major impact on liquidity in the economy and can trigger shifts in bond yields and inter-bank rates.

Source:BusinessDay