By Omoh Gabriel
The Central Bank of Nigeria Monetary policy Committee yesterday raised alarm over the deteriorating national economic growth stating that “The growth and development of the Nigeria economy will continue to be at risk so long as progress is not made in structural reforms.’’ The committee also warned that “The proposed upward review of electricity and import tariffs on wheat and rice as well as the rising global food and energy prices could further put upward pressure on prices in the near-term”. The Committee in a statement signed by the CBN Governor Sanusi Lamido Sanusi noted “indications are that the robust output growth recorded in 2010/2011 might not be replicated in 2012.
He cited provisional data from the National Bureau of Statistics which indicates that real GDP in the first quarter of 2012 grew by 6.17 per cent down from 7.68 per cent in the fourth quarter of 2011 and 7.13 per cent in the corresponding period last year.
Sanusi said “Overall, real GDP growth for fiscal 2012 is projected at 6.5 per cent down from 7.45per cent in 2011.’’ This confirms a disturbing and uninterrupted trend of decline going back to Q1 2010.
According to the CBN “Crude oil production was estimated to have declined by 2.32 per cent in quarter one 2012 compared with the decline of 2.41 per cent in the corresponding period of 2011. Non oil real GDP growth estimated at 7.93 per cent in Q1 of 2012 was much lower than 8.73 per cent recorded in Q1 of 2011.’’
The CBN governor said that growth in agriculture in the first quarter of 2012 also declined to 4.15 per cent compared with 5.54 per cent in Q1 of 2011 and 5.74 in fourth quarter 2011. “In general, the paradox of rising poverty incidence in the face of impressive economic growth further reinforces the committee’s call for the implementation of appropriate structural reforms in the key sectors notably agriculture, power and the petroleum sector to stimulate productivity.’
Prices
According to the CBN “As anticipated by the Committee in earlier meetings, inflationary threats re-emerged in Q1 2012, having moderated in Q4 2011. The year-on-year headline inflation which was 12.6 per cent in January 2012 moderated to 11.9 per cent in February but rose to 12.1 and 12.9 per cent in March and April 2012, respectively. Similarly, food inflation which was 13.1 per cent in January 2012 fell to 9.7 per cent in February but increased to 11.8 per cent in March before declining slightly to 11.2 per cent in April 2012. Core inflation, which declined to 11.9 per cent in February from 12.7 per cent in January, rose sharply to 15.0 per cent in March before moderating to 14.7 per cent in April 2012. On a month-on-month basis, inflationary pressure was rather benign between March and April, and the rise in year-on-year figures largely reflects the base effects in January from fuel subsidy removal. Overall inflation numbers remain within our forecast range.
“The proposed upward review of electricity and import tariffs on wheat and rice as well as the rising global food and energy prices could further put upward pressure on prices in the near-term. Notwithstanding this, the lingering impact of the aggressive monetary tightening measures undertaken since 2011 and the general slow growth in monetary aggregates and the impact of rising fuel prices in consumer spending, may moderate the pressure on domestic prices in the near term. Staff projections indicate that headline inflation is projected to peak around 14.5 per cent in July 2012 before moderating steadily till the end of the year.
“The Monetary Policy Committee (MPC) retained the Monetary Policy Rate (MPR), also known as lending rate at 12 per cent. The CBN Governor, Malam Sanusi Lamido Sanusi, said this while briefing journalists at the end of the MPC meeting. The committee meets every month to review and take monetary decisions.
Sanusi said Nigeria’s external reserves had increased to $38.72 billion as at May 17 from $36.66 billion in April, representing an 18.63 per cent increase over the level in December 2011.
“The increase reflected generally favourable commodity prices and inflows of capitals in response to the removal of restrictions on repatriations and high domestic interest rate as well as stable exchange rates. The committee noted the assurances of the bank that the total hot money in the system is under strict surveillance and that the bank is satisfied that the figure of 5 billion dollars does not pose a significant threat to the financial stability of the country in view of the current level of reserves. On the decision to retain the MPR, Sanusi said the apex bank was concerned about a slowdown in global economic activity and lower crude oil prices.
MPR is the rate at which the apex bank lends money to commercial banks for on lending to customers- this rate influences interest rates at any point in time He said the bank was equally concerned about the sharp decline in domestic oil production due to massive oil theft in Niger Delta and a drop in the agricultural output because of insecurity in some Northern states of the country.
“It was the committee’s view that at this point in time the trajectory of prices and output is more dependent on fiscal and structural policy than on monetary policy. The sluggish growth in credit, the stable exchange rate, the healthy reserve position and the benign month-by-month inflation do not suggest a need for further tightening at this point. Also the reasons given for the slowdown in our agricultural growth and oil sector will not be addressed by monetary easing.
“The decision therefore decided by unanimous vote to maintain the current stance of monetary policy without discounting the possibility of changing it should economic and financial conditions warrant such in the near term.’’
The CBN governor said the Committee also kept its +/- 200 basis point corridor while the Minimum Liquidity Ratio was retained at 30 per cent and the Cash Reserve Ratio (CRR) at 8 per cent. He said the committee was equally concerned that the increase in electricity tariff proposed for June 1 might lead to “further inflationary pressures.’’
“The Committee noted that since its meeting in March 2012, the uncertainties surrounding the global economy remained elevated owing to economic slowdown in France and major emerging economies as well as the financial threats in key emerging economies. These developments will have an impact on the domestic economy through the trade and financial flow channels weakening the external and fiscal positions.
“Monetary policy on its own has limitations with respect to inducing growth without fiscal and structural measures relating to petroleum, power and infrastructure sectors.
“The committee reiterated the need to recognise the short-term nature and limits of monetary policy.
