By Peter OBIORA InvestAdvocate
Nigeria’s Central Bank has increased its lending rate by 275 basis points to help boost the Naira and control price pressures in its economy.
Sanusi Lamido Sanusi, Governor of Nigeria’s Central Bank as part of the decisions reached at the N0. 79 of the Monetary Policy Rate (MPR) Committee meeting held Monday 10 October 2011 in Abuja Nigeria increased the rate to 12 percent (12%).
Other decisions reached include, maintaining the current symmetric corridor of +/-200 basis points around the MPR and to increase the Cash Reserve Ratio(CRR) from 4.0% to 8.0% from the maintenance period beginning October 11, 2011.
Also at today’s MPC meeting held, the net open position (NOP) was reduced from 5.0% to 1.0% of share-holders funds with immediate effect and with full compliance by Friday, October 14, 2011.
It was further agreed that the reserve averaging method of computation be suspended in favour of daily maintenance until further notice.
Meanwhile, on the Domestic Economy and Committee’s Deliberations, it was affirmed that the growth outlook for the economy does not appear to have changed much, driven largely by the positive forecasts for the nonoil sector as noted in the last MPC communiqué. Inflation had come down to 9.3% in August year 2011 but, as indicated in the same communiqué, a combination of monetary, fiscal and structural factors continue to advice against complacency.
Still on the Domestic economy, it was observed that the Naira has come under increasing pressure, and has recently traded outside the band of N150 +/- 3.0%.
According to the Committee, the increasing pressure on the domestic currency has been emanating from a number of sources not all of which can be addressed by purely monetary interventions. “First, there are concerns about the likely impact of a double dip recession on oil prices and already declining foreign reserves†the Committee noted.
Secondly, concerns about the delay in implementing fundamental economic decisions that will shore up reserves were raised. Specifically, it is estimated that simply passing the Petroleum Industry Bill (PIB) and removing subsidies on Premium Motor Spirit (PMS) will add at least US$10 billion to national reserves annually. “The petroleum subsidy for 2011 alone is estimated to be about US$6 billion†the Committee said.