By Peter OBIORA InvestAdvocate
Lagos (INVESTADVOCATE)-The Nigeria’s Central Bank Tuesday retained the Monetary Policy Rate (MPR) at 12 percent (12%) consecutively for the thirteenth; as it showed concerns over election spending following its Monetary Policy Committee (MPC) held November 18-19 2013 in Abuja Nigeria.
At the end of the MPC meeting, nine (9) members out of 11 voted to keep MPR at 12% +/-2%; private and public sector Cash Reserve Requirement (CRR) also retained at 12% and 50% respectively, and Liquidity Ratio at 30% corridor which was kept at + or – 2% points.
One (1) member voted for a 0.5% reduction in MPR and an increase in public sector CRR from 50% to 75%, while another member voted for 0.5% reduction in MPR and an increase in public sector CRR from 50% to 100%.
According to the Committee, it is also the year in which election spending is likely to take place domestically, thus bringing more pressure to bear from the fiscal side.
The Committee noted the potential risks to inflation of increased aggregate spending in the run-up to the 2015 elections.
As a result, the MPC is of the view that Nigeria is not yet at the end of the tightening cycle and may need to tighten further in response to these eventualities in 2014.
The MPC noted that savings have fallen from about $11.5 billion at year-end 2012 to less than $5 billion on November 14; while External Reserves have remained in excess of $45 billion only because of a massive inflow in portfolio funds.
According to the Committee, the implication of this is that financial markets are extremely fragile and susceptible to external shocks.
The Committee again called on the Fiscal Authorities to rebuild buffers in the excess crude account, and this can be done by blocking fiscal leakages in the oil sector and increasing oil revenues.
“Clearly, the major risk on the fiscal side at present is not one of escalation of spending but loss of revenue from oil exports,” the Committee said.
Also, they formally adopted an inflation target of 6-9% in 2014, and noted that ECOWAS Heads of State have set a 5% target at the Convergence Council and reaffirmed their commitment to moving Nigeria firmly into being a low-inflation environment in the medium term.
According to the Committee, the moderation in consumer price inflation, which began in the fourth quarter of 2012, continued in the third quarter of 2013. The year-on-year headline inflation moderated to 7.8% in October 2013 from 8.0% in September.
Also, food inflation declined to 9.2% in October from 9.4% in September 2013. Core inflation, however, rose to 7.6% in October 2013 from 7.4% in September.
Despite this, the Nigerian economy as estimated by the National Bureau of Statistics (NBS) grew by 6.81% in the third quarter of 2013, which was higher than the 6.18% in Q2, and 6.48% Q3 of 2012 respectively.
However, overall, growth for 2013 was projected at 6.87% up from 6.58% in 2012, indicating that the economy is remaining on its steady growth trajectory.
