The Governor of the Central Bank of Nigeria, Mr. Lamido Sanusi, on Tuesday said high level of corruption, insecurity and “mixed signals in power and petroleum reforms” would affect the country’s economic growth.

Sanusi said this while addressing journalists shortly after the Monetary Policy Committee’s meeting held at the apex bank’s headquarters in Abuja.

The governor said while the committee was of the view that the country’s Gross Domestic Product growth projection remained high, the listed factors posed a serious threat to output performance.

He said, “The committee was of the view that although the GDP growth projection remained high, there were a number of risk factors that were likely to affect output performance. These include perception of increased levels of corruption and impunity in the country, insecurity, particularly in the northern part of the country, as well as mixed signals from power and petroleum sector reforms.”

The National Bureau of Statistics had last month predicted a real GDP growth rate of 6.75 per cent in 2013, 7.24 per cent in 2014, 6.93 per cent in 2015 and 6.62 per cent in 2016.

The apex bank boss, however, said the committee was satisfied with the relatively robust output growth projections for 2013 despite the slowing global economy, on the back of favourable conditions for increased agricultural production.

He also expressed concern about the declining contribution of the oil sector to economic growth, which according to him, became apparent in the second half of 2011 and continued in the fourth quarter of 2012.

He said, “Crude oil production, including condensates and natural gas liquids, decreased by 37,000 barrels per day in February 2013 to 2.035m bpd compared with the level of 2.072m bpd attained in December 2012.

“Oil theft in the Niger-Delta remained a source of concern. The committee was also concerned that the decline in the growth rate of agricultural output which started in the 4th quarter of 2011 continued up to the end of 2012. “

Meanwhile, the committee for the ninth consecutive time left the Monetary Policy Rate unchanged at 12 per cent with a corridor of +/-200 basis points around the midpoint.

It also retained the Cash Reserve Requirements at 12 per cent and Liquidity Ratio at 30 per cent with a net open position at one per cent.

In arriving at the decision, Sanusi said the 12-member committee was faced with three options.

The options were an increase in rates in response to the rise in headline and food inflation and pressure on exchange rates; a reduction in rates in view of declining core inflation and GDP growth; and to retain the current monetary policy stance to sustain the gains of monetary policy.

He said, “The committee considered and rejected option one as being unnecessary since there are no major inflationary concerns at this time.

“While acknowledging the merit of the arguments in favour of option two, it was also rejected by the majority because it could send wrong signals of a premature termination of an appropriately tight monetary stance.

“The committee, therefore, decided by a majority vote of 9:3 to accept option three and maintain the current policy stance – to retain the MPR at 12 per cent.”

Despite shocks from both external and domestic environments, Sanusi said the committee was satisfied with the prevailing macroeconomic stability, adding that the development informed its monetary policy tightening decision since the third quarter of 2012.

Having achieved a reasonable degree of moderation in the rate of inflation, Sanusi said there were compelling arguments to consider easing monetary policy, at least from the perspective of stimulating growth in the real sector.

This, he noted, was considered from the standpoint of the slowdown in overall GDP, inability of Small and Medium Enterprises to borrow at the current lending rates, and crowding out effects that might require monetary easing.

He, however, added that the committee carefully weighed the option of relaxing monetary policy against the likely risks in the near-to-medium term, noting that reversing the current stance of monetary policy was not likely to produce a neutral outcome, as it might signal the preference for a higher inflation rate on the part of the CBN.

For instance, he argued that at nine per cent and 9.5 per cent in January and February, respectively, inflation data, which largely reflected the base effect of the first and second round impact of the fuel subsidy removal in January 2012, sent a clear signal that there was still a high risk of inflation in the near-to-medium term.

Furthermore, the governor said the committee observed that yields on Federal Government bonds had been declining steadily, signalling the impact of increased inflows while equity prices had been trending upwards.

He added that quantitative easing, especially in the United States and the European Union, was already creating a potential new round of asset bubbles globally.

He said while the growth in the domestic capital market was driven largely by the huge capital inflows, the principal risk to stability in the medium-to-long-term could be addressed through diligent implementation of sound policies of fiscal consolidation and structural reforms.

Source: Punch (By Ifeanyi Onuba)