The Governor of Central Bank of Nigeria, CBN, Mallam Lamido Sanusi, yesterday, called for the return of all government accounts to the apex bank to reduce cost of government debt. Meanwhile, at the end of CBN’s Monetary Policy Committee, MPC meeting yesterday, it left its three policy rates unchanged. In a communiqué issued at the end of the MPC meeting, Sanusi said that though inflation rate had continued to fall and remained at single digit, election year induced increased government spending and depletion of excess crude accounts, ECA, pose potential threat to future inflation and exposes the economy to vulnerabilities. He said: “The committee observed with satisfaction that in the last four months, all the three measures of inflation continued to be within the single digit inflation target. “However, the Committee noted the potential risks to inflation of increased aggregate spending in the run-up to the 2015 elections. “Overall, government spending in the second half of 2013 has been more moderate than it was in the earlier part of the year. The erosion of the fiscal buffers through the depletion of the ECA has further exposed the economy to vulnerabilities, while the fall in oil revenue has left capital inflows as the only source of external reserves accretion. On FG’s debt “The Federal Government debt has also risen phenomenally along with its deposits at the deposit money banks, showing the government as a net creditor to the system. “This underscores the urgent need for the immediate implementation of the Treasury Single Account. The continued delay in returning government accounts to the Central Bank is adding to the huge cost of government debt due to poor cash flow management.” As a result of these concerns, the MPC voted nine against two to leave the three policy rates unchanged. Thus the Monetary Policy Rate, MPR, which is the benchmark for other interest rate was retained at 12 per cent, while the Liquidity Ratio, portion of the assets banks are required to keep in liquid assets, was retained at 30 per cent. “The MPC also retained Cash Reserve Ratio, CRR, portion of assets banks must keep in cash, at 12 per cent for private sector deposit, and 50 per cent for public sector deposit.” Meanwhile, the MPC dismissed the possibility of changing its tight monetary policy stance and a downward review of the MPR. Rather it indicated intention to further tighten money supply, with the possibility of further increase in the MPR. Analyst’s prediction on MPC meeting Razia Khan, Regional Head of Research, Africa, Standard Chartered Bank, said that the outcome of the MPC meeting indicates that the CBN will further increase CRR on public sector deposit to 100 per cent. In a e-mail comment sent to Vanguard, Khan said: “One MPC member voted for a 25 per cent increase in the CRR on public sector deposits to 75 per cent, and another for a 50 per cent increase to 100 per cent. “The message to the market? The CBN remains serious about safeguarding hard-won price stability. Should we see evidence of pressure in the system related to excess liquidity (either a step-up in government spending, or pressure in the FX rate, or both simultaneously), then a further hike in the CRR on public sector deposits remains the most plausible policy option.
Posted on: Wed, 20 Nov 2013 09:14:54 +0000
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