Financial analysts have called on the Central Bank of Nigeria to begin a process of monetary policy slackening in order to boost liquidity in the system.

The Financial Derivative Company Limited in a report made available to our correspondent on Friday said there was the need to start reducing the Monetary Policy Rate to open up the economy.

The report said, “In 2013 it is expected that CBN would consider moving to a more accommodative monetary stance. In other words, the CBN could begin an expansionary process with a modest reduction in interest rates at its various meetings in 2013 and may look to boost liquidity, which will improve the general economic output and help reduce the level of unemployment in the economy.

“However, if the budget impasse between the President and the National Assembly over the increased benchmark of $79 per barrel is not resolved, the CBN may have no alternative but to retain its current MPR at 12 per cent between the first quarter and first half of 2013.”

Speaking on the exchange rate, the analysts noted that the naira was expected to remain reasonably stable against the major currencies of the world, owing to expected foreign inflow of investment into the treasury bills and the fixed income markets as a result of the increased yield.

“The continuous supply of foreign exchange by energy companies and the relative depth of the Nigerian forex and debt markets hold promises to help sustain the local currency. This is, however, subject to the decision of the CBN to use the naira as a monetary easing tool,” the report added.

They also pointed out that Nigeria’s foreign reserves accretion was mainly reliant on the global oil demand and supply dynamics.

The report said, “In 2013, we expect growth in Nigeria’s external reserves to be sustained as a result of the positive outlook for the global oil price. Demand for Nigeria’s crude is likely to ease in 2013 as a result of the announced United States self sufficiency at the close of 2012 and poor economic outlook for countries that would have been prospective buyers of Nigeria’s crude.”

The analysts, however, said external reserves might increase based on the government’s plan to diversify the economic base of the country from oil to non-oil sectors.

“We believe that 2013 will be a year of single digit inflation of approximately 9.24 per cent year-on-year. The worrying combination of a delayed impact of the flooding in fourth quarter 2012 and another possible partial/full subsidy removal in 2013 pose serious risks to our 2013 inflation outlook,” the report said.

Source: Punch (written by Ademola Alawiye)