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| Governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi |
Sanusi, while addressing journalists shortly after the end of a two-day Monetary Policy Committee meeting held at the CBN headquarters in Abuja, argued that excessive spending on military operations posed a major risk to the inflation outlook.
Headline inflation increased from 8.6 per cent in March to 9.1 per cent in April, remaining within the target single digit range for the fourth consecutive month in 2013.
The figure, according to the central bank boss, reflects a combination of base effect and the success of tight monetary policy, which have led to a muted growth in the monetary aggregates and exchange rate stability.
He said while the principal risks to the inflation outlook remained fiscal spending and possible pressures on the exchange rate from any attrition to reserves caused by declining revenues as a result of output leakages, there was the need for prudence in monetary policy action.
Sanusi said, “The committee noted with caution the high Gross Domestic Product growth projection in view of the extant risk factors such as widespread insecurity, weak infrastructure and probable flooding from the projected heavy rains in some parts of the country.
“The state of emergency in the North-East and the accompanying military operations in that axis have the potential to adversely affect economic activities generally, including agricultural production and food prices as well as consumer demand.
“In addition, the recent military action in the North-East will result in additional spending. Although the government has announced that there will be no supplementary budget, the Coordinating Minister for the Economy and Minister of Finance has already announced that there will be a draw down on a contingency vote embedded in the 2013 budget to cover emergencies.
“Overall, the committee is of the view that government spending will constitute a major risk to the inflation and exchange rate outlook, thus advising prudence in monetary policy action at this time.”
The CBN governor also said the committee expressed concern over the low level of credit growth to the private sector and traced this to the crowding out effect of high growth in credit to the public sector.
He said, “The committee noted the N1.02tn increase in claims on the government and the N1.11tn drawdown on savings between January and April 2013, and particularly, the monetisation of $1bn in April 2013, being proceeds of the Excess Crude Account.
“The combined effect of new borrowings and reduced savings was an increase in net credit to the central government of over N2tn in the first four months of 2013. The evidence points to an increase in the rate of government expenditure in 2013 when compared with 2012.”
On the country’s external reserves, Sanusi expressed satisfaction with its significant increase to $49.13bn as of May 16, 2013.
This, he noted, represented an increase of $5.3bn or 12.1 per cent above the level of $43.83bn at the end of December 2012.
The reserves level, he added, could finance approximately 13 months of import.
On the Monetary Policy Rate, the governor said the committee left it unchanged at 12 per cent.
It also retained the Cash Reserve Requirement at 12 per cent and Liquidity Ratio at 30 per cent; with the Net Open Position at 1.0 per cent.
The Punch