The Central Bank of Nigeria left major monetary indicators unchanged at the end of the maiden policy committee meeting for 2012. Stanley Oronsaye looks at the reasons adduced by major decision makers in taking this stance.
That the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) raised the benchmark interest rate about six times last year was enough reason for some skeptics to expect similar action at the end of the first MPC held in 2012.
The Monetary Policy Rates (MPR), which opened last year at 6.25 per cent, spiked to 12 per cent at the end of the year. The most spectacular move was when the MPC, at its October meeting, raised the rate by 275 points from 9.25 per cent.
However, this was not to be as the regulator kept interest rates on hold, while leaving other indices such as the interest rates corridor at plus or minus 200 basis points; retaining Cash Reserve Ratio (CRR) of banks at 8 per cent, minimum liquidity ratio at 30 per cent, and the mid-point of exchange rate at N155 to the United States dollar with a band of plus or minus 3 per cent.
According to Sarah Alade, CBN Deputy Governor, Economic Policy, the tight liquidity position brought about by previous rate hikes had pushed interbank rates upwards, thus posing a threat to private sector growth and job creation.” These developments, coupled with uncertain global economic environment, call for a stay of action on policy rate to help address the growth needs in the economy,” she stated in her personal notes at the end of the MPC meeting last week.
Temporary inflationary pressure
She argued that the inflationary pressure as a result of the 50 per cent increase in the price of petroleum product would be temporary as consumers would expectedly, embark on expenditure switching. She is optimistic that inflation may trend downwards to single digits from current 10.3 per cent as we approach 2013.
“Although inflation is projected to rise, the preemptive tightening stance adopted by the Central Bank in 2011 calls for a pause for now, to allow for the full effect of the policy.”
Abdul Ganiyu Garba, an academician and member of the MPC, observed that the Open Buy Back (OBB) and call rates have been trending downwards from a peak of 5.4 per cent in December 1, 2011 to an average of 0.65 per cent from December 28, 2011 to January 24 2012.
He said the OBB: “Which is the rate at which government securities are discounted at the interbank, and the call rate, which is the short term interest rate charged on a secured call loan, have declined from peak levels in early December 2011 to average 14.0 per cent (call rate) and 13.4 per cent (OBB) in the last month.