By Peter OBIORA InvestAdvocate

Lagos (INVESTADVOCATE) – Nigeria’s Central Bank Monday retained its Lending Rate at 12 percent (12%) 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 Number 80 of the Monetary Policy Rate (MPR) Committee meeting held Monday 21 November 2011 in Abuja Nigeria retained the rate at 12 percent (12%).

Other decisions reached include, maintaining the current symmetric corridor of +/-200 basis points around the MPR and the Cash Reserve Ratio (CRR) was also maintained at 8.0%.

At today’s MPC meeting, it was agreed that the mid-point of target official exchange rate should be adjusted from N150.00/US$1.00 to N155.00/US$1.00 and maintain the band of +/-3.0%.

This means that the Naira should float roughly within a range of N150.00/US$1.00–N160.00/US$1.00, unless extraordinary shocks necessitate a change in stance.

Another decision at the MPC meeting was to encourage the CBN to continue to seek convergence between wDAS and interbank rates to reduce arbitrage opportunities, avoidspeculative attacks, and the emergence of a multiple-exchange rate environment.

The Committee had earlier noted that international economic and financial conditions had deteriorated with possible threats of financial shocks from Europe, making it very difficult to correct the serious imbalances that have developed in the international economy since the peak of the global economic and financial crises.

“Most of the major industrial economies are at present economically weak and are expected to remain in recession with high unemployment rates and large unsustainable fiscal imbalances for an extended period, going by the recent forecasts of most international institutions. Inflation rates, with the exception of Japan, are expected to be higher than in 2010. It is projected at around 3.0% in 2011 in the US, the Euro-area and the UK compared with 1.9% in 2010.

It was also noted that the ratio of Government debt to Gross Domestic Product (GDP) for the European Union (EU) remains high and has led to a change of Governments in Greece and Italy and a likely election of conservative government in Spain.

“It has also led to the adoption of tougher austerity measures including staff rationalisation and privatisation. In the case of some countries of the Euro area, the Markets are still not certain that the risk of sovereign default will be addressed expeditiously and in an efficient manner” the MPC Report said.

The MPC said that these concerns have opened up issues relating to financial stability, given the considerable exposures of Banks and other financial institutions to Government securities across countries.

“Consequently, Financial Markets have become nervous with their uncertainties reflected in the volatility of stock, bond and foreign exchange markets. Current account imbalances are also projected to be high in 2011 in both the US and the Euro area” the MPC Report said.

In the same vein, the Committee also noted that Deposit Money Banks have improved the rates on fixed-term deposits. “Thus, the average weighted three-month deposit rate has gone up to 7.06% in October from 5.49% in September.

“Also, the rates on deposits for 12 months increased from 4.47% in September to 4.90% in October, 2011. The average weighted interest bearing deposit rate stood at 4.93% in October compared with 4.02% in September” the MPC said.

According to them, this increase in rates had been anticipated by the Committee and is likely to continue especially as Nigeria approach the December 31, 2011 deadline for the removal of the CBN guarantee on the Interbank Market.

It was noted also that Lending rates have gone up in response to tighter conditions in the Money Market.

Further to the above, the Committee observed that the bearish performance of the Nigerian Capital Market (NCM) continued for most of the year.

The All-Share Index (ASI) decreased by 18.0% on a year-to-date basis from 24,770.52 at end-December 2010 to 20,311.51 on November 18,

2011.

Also, Market Capitalisation declined, by 19.2% from N7.91 trillion to N6.39 trillion over the same period due partly to the delisting of acquired Banks. “The bearish Market is consistent with the trends globally in a very uncertain world where Fund Managers have resorted to a flight to safety. High yields on fixed income securities and subdued activity from investors in the wake of the Euro Zone crisis should advise against undue optimism for a rally in stocks in the short-term.” The MPC affirmed.