In the face of imminent slowdown in growth and output in the current year, only structural and fiscal reforms by the Federal Government would stimulate economic growth in the country and not monetary policy measures.
This was the position of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), which unanimously decided to keep monetary policy rates unchanged for the fourth consecutive time.
Chairman of the committee and CBN Governor, Sanusi Lamido Sanusi, who read the MPC Communiqué after their meeting yesterday in Abuja, said pointedly that the growth and development of the Nigerian economy will continue to be at risk so long as progress is not made in structural reforms.
The committee, which emphasised the short term nature and limits of monetary policy, made a strong demand on the federal government to fast-track the agricultural transformation initiative and to strengthen fiscal controls over the oil industry in order to stimulate economic growth.
Reviewing the performance of the economy, the MPC noted that real gross domestic product (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 of 2011.
“This continues a disturbing and unbroken trend in decline in growth going back to Q1 2010. Overall GDP growth for fiscal 2012 is projected at 6.5 per cent, down from 7.45 per cent in 2011. Crude oil production was estimated at to have declined by 2.32 per cent in Q1, 2012 compared to a marginal increase of 0.05 per cent in the corresponding period of 2011. Non-oil real GDP growth estimated at 7.93 per cent in Q1 of 2012 was lower than the 8.73 per cent recorded in Q1 of 2011. Growth in agriculture decelerated in Q1 to 4.15 per cent compared with the 5.54 per cent in Q1 of 2011.
“Agricultural growth rate has not been this slow in the last seven years,” it noted, adding that “the paradox of rising poverty incidence in the face of the impressive economic growth further reinforces the committee’s call for the implementation of the appropriate reforms in the key sectors notably agriculture, power and petroleum sectors to stimulate productivity.”
The huge drop in agricultural output was traced to factors namely increased production cost due to partial, displacement of farmers in the northern part of the country due to the security situation and inadequate rainfall,” he said.
Meanwhile, despite the rising inflation rate, the committee retained the MPR at 12 per cent, with the symmetric band for lending and deposit facilities at +/- 200 basis points. The cash reserve ratio remained at eight per cent as well as the liquidity ratio at 30 per cent.
In reaching the decision to maintain status quo, Sanusi said the sluggish growth in credit, stable exchange rate, healthy reserve position and benign month-on-month inflation did not suggest a need for further tightening at this point.
Recall that year-on-year inflation rose to 12.9 per cent in April 2012 from 12.1 the previous month. Also, core inflation rose sharply in March to 15 per cent in March 2012 before moderating to 14.7 per cent in April. The increase notwithstanding, Sanusi said the overall inflation numbers remained within the committee’s forecast, adding that despite the proposed upward review of electricity and import tariffs on wheat and rice as well as the rising global energy prices which could further put upward pressure on prices in the near-term.
Reacting to the MPC outcome, Regional Head of Research, Africa Global Research, Razia Khan said she was not surprised in the CBN’s decision to keep the monetary policy rate on hold at 12 per cent. “We believe that there will be limited room to ease interest rates unless we see a significant external shock with global consequences,” she said.