Governor Sanusi Lamido Sanusi of the country’s apex Federal Reserve Institute, the Central Bank of Nigeria and its monetary policy committees retained the benchmark interest rate at 12 percent. The market did not anticipate any change of the monetary interest rate; therefore there was no negative or positive reaction to the outcome. Sanusi's CBN cannot be accuse of not trying its best possible to utilize the tightening of the monetary policy as a tool to rein in the surging inflation, although the result has been mixed. Now CBN can realize that monetary policy alone that rests on the manipulation of the interest rate and supply of money has its limitation. Sanusi promised to hold down interest rate below 10 percent, but the subsequent disinflation was not grounded on fundamentals but on momentum and that's why it is difficult for inflation rate to stick below 10 percent.
Nigeria's economy has a structural problem that cannot be corrected with tinkering of the interest rate. First and foremost the resource derived from oil based economy is not realistic indicator and determinant of a functional economy. The external forces determine the price of oil and make it difficult for Nigeria to plan and implement a realistic budget due to price gyration of oil. The instability deems it necessary that Nigeria should move beyond oil based economy. But the quick, sweet and rush of easy money from oil have not allowed the policy makers to be logical and visionary on the strategic outlook of the economy.
With the regards of controlling inflation, the attention of the executive arm of government must be sought. There should be a coordinated platform to enable CBN and the presidency to work together. The fiscal policy coming from the presidency must be in tune with monetary policy of the apex bank. The point here is that as monetary tool functionality lapsed with regards to checkmating inflationary trends, then the need for putting fiscal policy into action becomes apparent.
Nigerian economy is weak in spite of the robust growth it has registered. The source for the generation of foreign exchange from the economy is limited and the economy is not export orientated. A major problem of the economy; it’s the inability to produce enough jobs to commensurate to the robust economic growth. As for naira even with its recent appreciation, it is also weak and malleable when compares to dollar.
To enhance the value of naira the country's war chest must be strengthened in order to withstand the threat coming from speculators. The country's reserve stood at US$ 32.64 billion in December and the inability to replenish the dwindling reserve in spite of high price of oil was due to the constant defense of the weaken naira. The CBN has eventually restored to the devaluation of naira up to N160 to $1. But the bulwark is not the panacea because it is focusing on the symptoms of the problem not on the root cause. The country does not produce arrays of agricultural and finished products to export in order to raise a quantifiable foreign exchange that can make naira stronger and that can discourage currency speculators.
Central Bank of Nigeria may be happy with partial removal of fuel subsidy but that cannot accomplish the targeted purpose of propping up foreign reserve. There are immediate effects and implications that come with the removal of the fuel subsidies. The first major problem will be higher inflation which may accelerate to 13 percent or more. Then the prices of agricultural products and household products will escalate due to transportation and energy cost. The standard of living will likely to depress and that is not a good trend in a country with 70 percent of the population survives with less than two dollars a day. The increasing poverty does not augur well with the stability of society and that can be translated to higher crimes and poor security. Poverty and insecurity discourage economic development and have the propensity to encourage capital flight and weaker attraction of direct investments in the non-oil sector of the economy.
The economic growth of the Gross Domestic Product at fourth quarter of 2011 was 8. 68 percent while inflation rate was at 10.3 percent in December. The fourth quarter GDP growth was impressive but it did not make a difference on the people due to lack of jobs and increasing poverty.
According to the Domestic Macroeconomic and Financial Developments issued by Sanusi's Central Bank of Nigeria the "real Gross Domestic Product (GDP) grew by 8.68 per cent in the fourth quarter of 2011 up from 6.64, 7.72, and 7.40 per cent in the 1st , 2nd and 3rd quarters, respectively. The overall GDP growth rate in 2011 was estimated by the NBS at 7.69 per cent, marginally lower than the 7.87 per cent recorded in 2010. This projection is based on the estimated Quarter III and Quarter IV growth rate of 7.40 per cent and 8.68 per cent respectively. The 2012 Budget proposal assumed a growth rate of 7.2 per cent." Without doubt the data looks wonderful on piece of paper, how far does it fare in the real world?
Looking at the data the Central Bank of Nigeria should have been excited together with streets and villages of Nigeria of the surging economic growth buttressed by the rosy numbers. But that was not apparent because it did not translate into more jobs. The unemployment rate stood at almost 24 percent (23.9) at the fourth quarter according to National Bureau of Statistics (NBS). But the real unemployment rate is definitely higher when urban joblessness among the youths is factored in and rural unemployment statistic is properly gathered. Due scientific and technological limitations, the unemployment number was not correct.
Faces of poverty in Nigeria
Sanusi Lamido speaking at the lecture he delivered at London School of Economics could not explain succinctly the real reason why the unemployment was escalating despite the rosy economic growth in the country. His words, “Major bottlenecks and supply-side constraints, including enabling legal framework” have “slowed the responsiveness of some CBN reform measures.” And he continues, “The link between major growth drivers, particularly agriculture and manufacturing, continue to be weak and the required costs of the expected infrastructural needs of the economy are daunting and remained a major challenge to financial sector, “the need for a low-cost long-term infrastructure financing requires more than the CBN alone can tackle.” All he was saying that there is no answer for what is happening in the economy with regards to economic growth and higher unemployment.
Sausi's CBN did some good: The Recapitalization and Quantitative Easing (QE) brought back confidence in the banking sector. The down side is that over stimulation and over supply of money may induce higher inflation. The billions of naira that was used to propped up and bail out collapse banks probably overheats the economy and that could trigger higher inflation. That will make the job of controlling inflation more difficult.
Notwithstanding, CBN deserved huge credit for salvaging the failed banks but the banking sector cannot function alone to the exclusion of the whole economy. CBN cannot do it alone; the country's economic problem cannot be resolve by moping of the liquidity and tightening of the monetary tool to rein in inflation. A country with structural problem needs a committed and visionary leadership.
Nigeria's economy needed to be over hauled to make it more productive, not only relying on oil export. The problem of infrastructures must be tackled not with lip service but with pragmatism. The refinery must be built and those ones in progress must be completed to bring down the price of petrol and to meet the local demands. Roads, schools, electricity and most important the security must be improved. Political instability and social unrest are gateway for capital flight and investments repatriation. Nigeriamust reject these ailments that can threaten and deter economic growth.
Government’s claim to subsidy value of over N600bn per annum is considered outrageous and unsustainable as these expenses subhead alone usually exceed the consolidated capital votes for health, education and transport each year. Meanwhile, Nigerians continue to bemoan the huge infrastructural deficits in these critical areas of social welfare, but still rigidly insist on the maintenance of this oppressive expenditure pattern. Indeed, the Peoples Democratic Party led-government has continued to threaten Nigerians with petroleum subsidy withdrawal for over six years, with renewed calls and affirmation by government officials every month or so. The bombshell was finally thrown on New Year Day when the government announced the removal of the subsidy on petrol.
Nonetheless, subsidy has increased from just over N100bn in year 2000 to its current value of over N600bn, while government continues to make feeble noise on the end of subsidy. The truth, of course, is well recognised by government that removal of subsidy will bring untold hardship to all Nigerians (especially those who do not have easy access to government treasury). But there is the possibility that subsidy could exceed over 70 per cent of our capital budget, if oil prices rise fortuitously to above $100/barrel in the next 12 months. If this happens, any hope that we will make any serious impact on our infrastructural deficit may well be a pipe dream together with the porous Vision 2020 strategy.
I have maintained without equivocation in the last six years that it will be impossible for government to cancel subsidy (i.e. dismantle the Nigerian National Petroleum Corporation’s current petrol import monopoly) without first dismantling the monopoly of our Central Bank in the foreign exchange market, where the CBN controls over 80 per cent of all dollars traded in the market while it maintains its constitutional monopoly of all naira issuance concurrently. Needless to say that government’s dilemma on fuel pricing firmly corroborates our observation.
However, we have noted how the adoption of the instruments of dollar certificates (strictly not cash) for disbursement of dollar derived revenue to constitutional beneficiaries would immediately lead to steady decline in local fuel prices such that ‘subsidy’ will become unnecessary while government will be repositioned to actually derive substantial revenue from a sales tax which can be levied without any opposition from labour.
In other words, the adoption of dollar certificates will make available over N600bn for capital and social welfare enhancement in addition to a sales tax revenue of up to N10/litre on the estimated 30 million litres of fuel consumed daily. If the situation can be turned around so simply and beneficently, why is the government pussyfooting on this vital issue? The only obvious reason for government’s lack of enthusiasm to embrace this reality is that its adoption would quickly reduce the space for corruption and self-enrichment, particularly in the CBN, the commercial banks, the executive arms of government and in the bureau de change, who now serve as a collaborative conduit with treasury looters to facilitate money laundering.
A national newspaper’s editorial on June 17, 2010, entitled, “CBN and Petroleum Subsidy”, aptly captures the issues. It is axiomatic that the same CBN which is primarily the promoter and the villain in the scourge of subsidy is also shouting the loudest for its removal. Some analysts observe that it is a case of propaganda and an attempt to distract attention and divert recognition of the apex bank as the engine of our problem. The editorial under reference noted among others that:
“The problem of petroleum subsidy has lingered for several decades and it is therefore regrettable that the CBN failed to look inward for alternative options for resolving the matter, a sine qua non – confirmed by the following cursory historical review. Petroleum products have not always been subsidised nor did the outset of subsidy result from lagging petroleum product prices relative to changes in the international price of crude oil. From its stable price of 8.8 kobo per litre in 1966-78 when there was no subsidy, petrol price rocketed by 73,700 per cent to N65 per litre today.
“Also diesel which retailed at 11 kobo per litre in 1985 zoomed to 99,900 per cent or N110 per litre currently. But crude oil, even at the peak price of US$147 per barrel in 2008, rose by only 880 per cent over the 1978 level of $15 per barrel. Hence nominally, with domestic petrol and diesel prices outpacing crude oil prices by 84 fold and 114-fold respectively during the period, the culprit in the vexed subsidy is the precipitous depreciation of the naira by over 99.6 per cent since 1980 with its attendant high inflation. Doubtless, the monetary and fiscal authorities culpably left their job undone.
“Accordingly, until the CBN begins to correctly infuse federation account dollar proceeds into the system so as to halt the slide of the naira and stem high inflation, removal or reduction in petrol subsidy would leave the masses worse off. On the contrary, when government flushes out (as it should) the oil sector cabal currently cornering substantial part of the subsidy, the lot of the masses would improve. Poised against the masses, Sanusi further sought to justify his position by claiming falsely that government was borrowing to pay petrol subsidy debts. The truth is that proceeds (local or external) from any volume of crude oil allocated for domestic consumption more than cover whatever shortfall that might arise because of the controlled pump price of petrol.
“For now, as the CBN searches for excuses for its unending failures, Nigerians should be spared the distraction and economic pain that the removal of the remaining petroleum subsidy could cause.”
However, how do Nigerians see government’s argument and propaganda for rationalising subsidy removal? To answer this question, we will conclude this week’s piece with excerpts from a rejoinder entitled, “The Arithmetic of Subsidy, the ‘Isiro’ of Deceit” (isiro in Yoruba translates to calculation) by Oyewale Tomori, a Professor of Virology on page 64 edition of the same newspaper on June 24, 2010. It reads as follows:
“The campaign, or rather the war to remove subsidy has been going on now for some time; the losers will be the ordinary abandoned, deserted, discarded, forsaken, neglected and done for citizens of Nigeria… They have employed tactics bordering on deceit, trickery, duplicity, deception and guile. It is either somebody is trying to fool us, or the secret of how much we really need to develop this country has been inadvertently released to us.”
It is beginning to look that Sanusi Lamido Sanusi, the executive governor of Central Bank of Nigeria (CBN) is stepping into a pathway of perplexing contradictions. At the time that International Monetary Fund (IMF) recommended for Nigeria to devalue naira, Sanusi was insisting that there is no need for the devaluation. He did everything he can to make it absolutely certain to every one listening that there is no logical financial reason to devalue the already malleable and soft naira. Most Nigerians were singing his praises that Nigeria has gotten a financial leader that cannot be intimidate by overbearing IMF, a leader that is not willing to be genuflecting to the international financial institutions. But apparently not, the CBN chieftain is doing Texas-Two Step backward dance.
Sanusi has begun to sing a new tune; it is no more the IMF asking him to drink the bitter liquid of devaluation. The CBN titan has chose to do it for the public good as it appears to keep the economy floating as the bulwark to the anticipated nosedive of oil price, with subconsequent lower foreign reserve. The reason that is more plausible is to appease the international financial powers who are probably breathing per irately down his neck. The naira has been devalued up to N160 to $1 but the devaluation will not stop there. Go and mark this, it is a slippery slope and the devaluation will continue. But interestingly, Nigeria does not have the requisite dollar reserve to satiate the demand that comes with the devaluation.
Finacial Times of London wrote: “Nigeria devalued the naira on Monday as falling reserves, caused by weak oil revenues, forced its hand. The central bank announced the naira would be pegged to the dollar within a target range of N150 to N160, up from a bracket of N145 to N155 per dollar. The bank wants to converge the official forex rates with the interbank rate and narrow arbitrage trading opportunities – the chance for investors to profit from the two different rates"
David Kahone of Financial Times further reported that, "The main reason for Nigeria’s decision to devalue, according to Renaissance Capital, the Russian investment bank, is a fall in its reserves brought about by lower than expected oil production in 2011 and a low projected oil price in 2012. Africa’s biggest oil producer derives some 75 per cent of its revenues from oil and is revising down its benchmark oil price in the 2012 budget to $70 per barrel from $75 per barrel – not an insignificant shift"
The apparent devaluation will not bring about any affirmative result that compelled CBN in first place to devalue naira. Nigeria had passed through this path before and it did not make a difference nor did it change the economic paradigm of the nation in good trends. The problem with Nigerian economy is beyond the application of monetary policy and in this case the devaluation of naira. Nigeria has major structural problem that cannot be rectify by artificial depreciation of the naira. The problem with country's economy is over reliance on oil and by thinking that the party will last forever. The idea of diversification is a lip service given by policy makers as the country is busy chasing a shadow that is merely a mirage. A nation cannot become economically independent by exporting one commodity with a weak currency which will eventually attract IMF's neo-liberal policies. As the country implement neo-liberal policies, it will not stop with devaluation of naira, the shrinking of spending on social program will follow put including the removal of fuel subsidy and banning of importation of many essential commodities. The government will balance the budget on the back of the poor people of Nigeria and suffering will geometrically increase.
The major contradiction coming form naira's devaluation is threat it posed to stabilizing inflation and the further erosion of domestic value of naira. Devaluation is another method of creating more money in the circulation especially with the weaken naira. With devaluation and subsequent enormous soft naira in circulation the prices of food, goods and services will go up; that will make the ugly hand of inflation to rigidly standout and making it more difficult to rein in inflation. Then CBN will restore to further mopping of the liquidity by tightening monetary tool, thereby jacking up interest rate which will conversely slow down the economic growth. No matter from which perspective or angle one looks at the naira devaluation its benefit is quite limited and there is no optimum quantifiable outcome. One thing it can do is to discourage importation, but Nigerians are already addicted to foreign products and travelling abroad; surely Nigerians will find a way to circumvent it and continue with their addictions.
The price of oil and foreign reserve have the propensity to be gyrating cyclically and using naira's devaluation to stabiles the economy is not logical at long term. It should be a tactical response to a momentarily problem but it is not strategically plausible to become the panacea. Nigerian economy is standing on a dislocated table that can be easily be pull down by forces of the market. The economy is growing at above 7 percent but without infrastructure and security the growth may not be sustainable.
CBN's chief Lamido Sanusi may do the public good and world economy good by devaluation that will make oil cheaper. It can be accepted for a short time but Nigeria may not necessarily be the beneficiary because Nigeria does not have arrays of commodities and finished products to export. This boils down on the lopsided economy and portrays how weak the manufacturing and agricultural sectors are in the country. The source of country's earning of foreign exchange must be expanded beyond oil export by diversification of the economy. This must be made perfectly clear to the policymakers that Nigeria cannot devalue her currency to a successful economy.
As CBN raises Benchmark interest rate to 12 percent, inflation rose to 10.3 percent in September from previously 9.3 percent in August
Once again at the beginning of fourth quarter, the country’s Federal Reserve Bank; the Central Bank of Nigeria (CBN) raises the monetary policy rate (interest rate) to a new high of 12 percent from previously 9.25 percent. There is no surprise with the new hike knowing quite well that CBN has been aggressively engaged in the tightening measures of its monetary policy and assiduously mopping the monetary base liquidity. But the margin of the hike at 2.75 percent from the previous rate was astounding. The capital market was anticipating at least a 10 percent hike but the muscular CBN jumped interest rate to 12 percent.
The reason given by the Governor of Central Bank, Mr. Lamido Sanusi for the hike was to strengthen the relatively malleable Nigeria’s currency naira. Although naira is weakening but it is not necessarily in a dire straight either it is totally collapsing to require such a drastic hiking of the interest rate to 12 percent. Subsequently Naira responded and appreciated against dollar due to the aggressive move; it did rally in the market and closing good the next day after the hike of the interest rate.
Vanguard Newspaper reported that “naira opened at 157.40 against the dollar at the interbank, firming from Tuesday’s close of N158.90 and up six percent from the record low of 167.8 reached before the CBN imposed several monetary tightening measures at an emergency meeting on Monday.” It was reported that Central Bank of Nigeria (CBN) at auction market sold $519.67 million at price rate of N150 for a dollar. On the previous day before the recent interest rate hike $400 million was traded at N156.91.
Other than the strengthening of naira, the unmentioned reason for the interest rate hike might be to get the economy ready for the removal of fuel subsidies. The idea is to utilize the monetary tightening policy as bulwark from the eventual higher inflationary trends as the subsidies are removed.There is no doubt that inflation will spike momentarily for a short time as fuel subsidies become history. Although Sanusi’s CBN was mum on fuel subsidies as propelling force for 12 percent monetary interest rate, but the writing is on wall. The development buttressed that the removal of fuel subsidy is a sure banker and there is no more orbiting around it, the government has finally made up its mind.
But the move to fix naira from its fall by CBN is not sustainable for the ‘shock therapy’ cannot solve the problem of naira permanently. The Sanusi’s CBN appears to be riding on momentum rather on fundamental; Nigeria has a structural imbalance that the tickling by CBN is quite minuscule to make a long term impact on the monetary affairs of the country and the strengthening of naira. Nigerian economy is based on oil and such an economy without diversification lacks the strong fundamental to sustain a viable and strong currency. When Nigeria sits up and makes the necessary changes in the way she runs her economy, the malleability of naira can be checked. The reactionary posture by policy makers is not the panacea to the falling naira.
The source of foreign exchange to Nigeria’s economy is limited. The major source of dollar to the economy is through the export of crude oil and remittance coming from Nigerians in Diasporas particularly from North America. Another weakness in the economy is its inability to sustain or hold to those dollars flowing into the economy. This is because the economy and country lack the necessary infrastructures that can hold on to the dollars in the economy. Paucity of social infrastructures, poor security and underdevelopment contributes to capital flights. The country is becoming unattractive to foreign investments and dollars.
The problem with Nigerian economy and particularly with Naira is akin to football team that never soccer a goal in matches and always loses due to lack of training and planning.Although a team might have some good players but without training, planning and coordination it will never succeed. Nigeria has intelligent men and women but it has failed to map out a pragmatic and strategic framework to transform the nation’s economy.
In September inflation rose to 10.3 percent and this shows that the tightening monetary measures employed by CBN maybe waning. There is so much CBN can do with its monetary policy and if care is to be taken the success that CBN achieved may even reverse. This is why it is important that propping of naira and the battle against inflation must come with comprehensive strategy and economic reforms spearheaded with the executive fiscal policy.
Another thing sticking out with the 12 percent hike is the underpinning contradiction coming from CBN policy makers. The appreciation of naira will result in a sharp demand of dollar and CBN may not satisfy the demand. A contradiction that arises from the strength of naira is contrary to devaluation of naira that CBN is planning for near future. It is not logical to make naira stronger, simultaneously planning to devalue the currency in near future. The withdrawal from the country’s foreign reserve to defend naira has lowered the Nigeria’s reserve from $31.75 billion at the end of September to $30.86 billion as of October 7. The battle to save naira is expensive to the country therefore Nigeria must look beyond monetary tightening measures.
Central Bank of Nigeria raises benchmark interest rate to 9.25 percent, up from 8.75 percent
ABUJA (Reuters) - Nigeria's central bank monetary policy committee on Monday raised its benchmark interest rate for the fifth time this year in anticipation of upward inflationary pressures and to support the weakened local currency. The MPC lifted its benchmark rate to 9.25 percent, up from 8.75 percent, a move at the top end of analysts' expectations. Central Bank Governor, Lamido Sanusi, said although inflation had declined in the last two-months, high government spending, a new minimum wage, the likely removal of fuel subsidies and a flood of expected liquidity from the state "bad bank" were all likely to push prices higher.
"Concerns remain about sustaining the current inflation trend. The anticipated high liquidity in the near future would have a bearing on inflation in the near future," Sanusi told reporters, reading from the MPC communique in Abuja."The fiscal stance continues to be expansionary. In addition there is the weight of structural factors such as the announced hikes in electricity tariffs and the expected removal of the petroleum subsidy."
The committee voted 8-3 to raise rates and they all agreed to maintain a 200 basis point corridor around the MPR, meaning its recommended deposit rate is 7.25 percent and lending rate 11.25 percent. Sanusi said the decision to lift the benchmark rate was also influenced by the need to support the naira, which weakened to its lowest level against the U.S. dollar for four months on Monday.
The central bank has tried to prop up the local currency by selling dollars at a bi-weekly auction and through monetary tightening but without sustained success."It looks as though there is a clear intent to bring real interest rates to positive levels, in order to shore up support for the naira," said Razia Khan, Head of Africa Research at Standard Chartered.
"With GDP growth between 7-8 percent, and a questionable transmission mechanism of monetary tightening to the real economy in any case, this is something the CBN can afford to do."
Analysts had been divided on the likely outcome prior to the meeting. Seven of the 13 analysts polled by Reuters expected rates to rise by 25-50 basis points, with the rest predicting rates would be unchanged. Nigeria's inflation remained steady within the central bank's notional single-digit target in August, data showed this week. Headline inflation was 9.3 percent year-on-year in August from 9.4 percent in July, while growth in food prices, the largest contributor to the consumer inflation figure, rose to 8.7 percent in August from 7.9 percent in July.
But core inflation, which excludes some volatile components such as food and energy, remained in double digits in August and the central bank remains concerned about continued high government spending, especially recurrent expenditure. Nigeria's new finance minister, Ngozi Okonjo-Iweala, pledged to cut back government spending when she arrived last month but early benchmarks set out for the 2012 budget last week showed few signs of a promised fiscal prudence.
Okonjo-Iweala's cautious plans did not convince Sanusi.
"The government has announced a target of a 1 percent annual reduction in government recurrent spending and when viewed in the context of the anticipated injections associated with the new national minimum wage this reflects that the fiscal retrenchment is likely to be drawn out," he said.
Sanusi said stalling global economic growth was likely to impact Nigeria through a drop in trade and investment, while the recent poor performance of the Nigerian stock market was a reflection of declining risk appetite internationally
Nigeria's central bank is diversifying its foreign-currency reserves and plans to hold between 5 percent and 10 percent in Chinese yuan, said Governor Lamido Sanusi.
Dollars and euros will remain an important part of the country's $33 billion holdings, he said today in an interview broadcast on CNBC.
A downgrade of the U.S.'s credit rating by Standard & Poor's last month and financial turmoil in Europe "added urgency to start moving away at least some of the reserve from these currencies and start looking to the future," Sanusi said. While the U.S. will remain a very important economy, more countries will look to China, "which is better managed, and which seem to have much stronger fundamentals," Sanusi said.
Nigeria, Africa's top oil producer and most populous nation with about 140 million people, depends on oil exports for more than 80 percent of government revenue and 95 percent of foreign-exchange income.
Nigeria is planning a swap arrangement with the People's Bank of China for supplies of yuan, Sanusi said. The Asian nation's decision to allow its companies to make outgoing investments in yuan will also become a source of supplies of the currency, he said.
"Given the size of the trade between Nigeria and China, given the fact that we expect that to grow, settlement in yuan will be one good way to use the liquidity," Sanusi said.
Total imports from China in the first quarter rose 60 percent to 341.8 billion naira ($2.2 billion) compared with 207.8 billion naira from a year earlier, according to the National Bureau of Statistics. Exports during the period rose 67 percent to 63 billion naira.
Nigeria's inflation drops to 9.4% in the third quarter of 2011
A good and encouraging record trickled from National Bureau of Statistics that inflation rate receded to 9.4% in July, the lowest so far in three years. This is a significant improvement from persistent inflation that was surging upward that compelled the Central bank of Nigeria (CBN) to aggressively tighten monetary policy. As of June the inflation rate stood at 10.2% and this made the Sanusi's CBN to raise the interest rate to 8.75%. There is no doubt that the monetary policy of restraining and mopping up liquidity at the monetary base aided to slow down the rising inflation.
The governor of Central Bank of Nigeria, Sanusi Lamido has promised earlier to hold down inflation rate at less than 10%, but for a while it appears futile. Therefore the apex bank of the land, CBN gets into muscular mood by increasing the interest rate at numerous times to rein in the run away inflationary trends. Many observers of Nigerian economy and market including investors were little skeptical about the usage of the aggressive tightening of the monetary policy to achieved the targeted goal.
Financial writer at Thisday, Obinna chima observed that, "The CBN had always expressed disdain for double-digits inflation rate in the country. This has seen the apex bank’s Monetary Policy Committee (MPC), adjusting various monetary policy instruments to achieve that ambition. The MPC which has operational independence in setting of interest rates in the country had increased the benchmark interest rate – the Monetary Policy Rate (MPR) four times since this year. The benchmark interest was raised from 6.5 per cent in January to 7.5 per cent in March, 8 per cent in May and to 8.75 per cent at the July meeting. Other monetary policy tools such as Cash Reserve Requirements (CRR) had also been reviewed upward."
In reality the issue of taming inflation in Nigeria must go beyond monetary policy but should involves the presidency's fiscal policy to help in the struggle to control inflation. Central Bank of Nigeria should be probably elated with the recent development as inflation now stood below 10% but the struggle is not yet over. The increasing of interest rate to dry up the market excessive liquidity in order to achieve the desired goal of restraining inflation may have a reverse effect at some point. As the interest rate increases it will dampened economic growth by making the availability of credits and loans to tighten. The scenario may once again usher in credit crunch and the financial flow of liquidity in the capital market. This is not the result that CBN is trying to achieve, that it is why a comprehensive outlook is needed to continuous wrestle down inflationary trends.
The economy is cruising at 7.9 - 8 % and that is phenomenal by any standard. The growth must be jealously protected from the rising inflation that can quickly dent the economic growth and reverse the trend. The injections of surplus money into the circulation by the bailing out of the failed banks have in the past contributed to inflation. The continuous and excessive borrowing by Nigerian government by selling of the bonds must be done in way that too much money will not overheat the economy. Nothing is wrong with a country selling bonds and T-bills to investors but the raised funds must be diligently funneled into the economy by the way of investments.
Another methodogy that can be used to checkmate inflation is for Nigeria to live within its means. By this a planned budget must be sensible and it must be successfully implemented. When a government dabbles into excessive spending that will increase its current expenditure and in the long run have untold consequences. The ramifications may come in the retarding of the economic activities and the surging of inflation rate due to excessive liquidity in the market. When Nigeria lives within its means, there will be no need to aggressively raise the interest rate to combat inflation.
When the interest rate was raised to 8.75% at end of CBN's Monetary Policy Committee (MPC) session, it issued a statement that, "The Committee observed that the inflation outlook appears uncertain owing to the expected implementation of the new national minimum wage policy and the imminent deregulation of petroleum prices. Significant injection of liquidity from FAAC in the third quarter coupled with the impact of AMCON recapitalizing intervened banks to the tune of N1.6 trillion will both add to inflationary pressures." That is supposely the case but it is not the whole story; the excessive government spending and borrowing played a role to the state of inflation.
Investment in this case means to put money and resources on things that will enable the creation of wealth possible. Investments should go into the provision of infrastructures and social amenities that are needed by the citizens and capitalist for further creation of wealth and upliftment of the wellbeing of the society. The Nigerian government should do its best possible to provide electricity, good roads and security. The security in this case becomes imperative for the protection of life and property, which is the most important function of a given government.
But there are also coming attractions to the economy according Samir Gadio, an emerging markets strategist at Standard Bank Group Ltd that makes outlook on inflation “uncertain.” Those coming attractions include the doubling of "the monthly minimum wage to 18,000 naira ($116) and to deregulate fuel prices, central bank Governor Lamido Sanusi said last month. Core inflation, which excludes food, will probably accelerate in the second half of the year." These activities have the propensity to increase inflation.
Nigeria must look into the cutting down of importation of food commodities especially rice that can be grown in Nigeria. The less reliance on importation, less spending and less borrowing can bode well for a sound economic standing devoid of higher inflation.
Lagos — Nine Nigerian banks have made the list of the Top 1000 World Banks Ranking by Tier One Capital in the 2011 edition by The Banker magazine as published in its current edition. According to a statement signed by the Country Representative of The Banker, Mr. Kunle Ogedengbe, Zenith Bank and First Bank are the two top ranked banks in Nigeria. While Zenith is ranked 296, First Bank of Nigeria Plc is ranked 310. Other Nigerian banks that made the Top 1000 World Banks list are Guaranty Trust Bank ranked 444, Access Bank (495), United Bank for Africa (513), Fidelity Bank (567), First City Monument Bank (586), Diamond Bank (650) and Skye Bank (657). Apart from featuring in the top 1000 World Banks, the banks also made the Top 25 banks in Africa with Nigeria being the only country in the continent that has nine banks in the African Top 25 ranking schedule. CBN's Sanusi
Lagos — Nine Nigerian banks have made the list of the Top 1000 World Banks Ranking by Tier One Capital in the 2011 edition by The Banker magazine as published in its current edition.
According to a statement signed by the Country Representative of The Banker, Mr. Kunle Ogedengbe, Zenith Bank and First Bank are the two top ranked banks in Nigeria. While Zenith is ranked 296, First Bank of Nigeria Plc is ranked 310.
Other Nigerian banks that made the Top 1000 World Banks list are Guaranty Trust Bank ranked 444, Access Bank (495), United Bank for Africa (513), Fidelity Bank (567), First City Monument Bank (586), Diamond Bank (650) and Skye Bank (657).
Apart from featuring in the top 1000 World Banks, the banks also made the Top 25 banks in Africa with Nigeria being the only country in the continent that has nine banks in the African Top 25 ranking schedule.
CBN raises policy rate Meanwhile, the Central Bank of Nigeria, CBN, yesterday raised the Monetary Policy Rate (MPR) to 8.75 per cent, to further tighten money supply in anticipation of future rise in inflation. The MPR is the benchmark for interest rate in the economy. The CBN also reported that the nation’s real gross domestic product (GDP) growth slowed down in the first quarter to 6.64 per cent from 7.36 per cent in the preceding quarter, warning that security challenges, infrastructural bottleneck and government spending could undermine investors’ confidence and output growth in the near term. In a communiqué issued at the end of its Monetary Policy Committee (MPC) meeting, the CBN explained the rational for raising the MPR for the third time this year. It said, "The Committee observed that the inflation outlook appears uncertain owing to the expected implementation of the new national minimum wage policy and the imminent deregulation of petroleum prices. Significant injection of liquidity from FAAC in the third quarter coupled with the impact of AMCON recapitalizing intervened banks to the tune of N1.6 trillion will both add to inflationary pressures. South Africa and Egypt have five banks each, Morocco has three while Togo, Angola and Mauritius have one each. With the first listing published in 1970, The Banker Top 1000 ranking has for over 41 years served as a credible source for the measurement of the stability of global banks along with in depth analysis of the global financial industry. In the 2011 ranking, the United States of America maintains number one position through Bank of America, followed by JP Morgan Chase & Co., while HSBC of the United Kingdom moved to third from fifth ranked position last year New comers to the top 10 compared to last year are Mitsubishi UFJ Financial Group Japan, China Construction Bank Corporation and Bank of China while those who did not make the top 10 this year compared to last year are BNP Paribas, France; Barclays Bank, UK and Banco Santander, Spain. The rankings are based on the definition of Tier One Capital as set out by Basel’s Bank for International Settlements (BIS) and the object of the survey is to show the banks’ soundness in relation to the Basel requirement of a minimum ratio of Tier One Capital to risk-weighted assets of 4 per cent (increasing to 7 per cent by 2019) and a minimum ratio of total capital to risk-weighted assets of 8 per cent.
CBN raises policy rate
Meanwhile, the Central Bank of Nigeria, CBN, yesterday raised the Monetary Policy Rate (MPR) to 8.75 per cent, to further tighten money supply in anticipation of future rise in inflation. The MPR is the benchmark for interest rate in the economy.
The CBN also reported that the nation’s real gross domestic product (GDP) growth slowed down in the first quarter to 6.64 per cent from 7.36 per cent in the preceding quarter, warning that security challenges, infrastructural bottleneck and government spending could undermine investors’ confidence and output growth in the near term.
In a communiqué issued at the end of its Monetary Policy Committee (MPC) meeting, the CBN explained the rational for raising the MPR for the third time this year.
It said, "The Committee observed that the inflation outlook appears uncertain owing to the expected implementation of the new national minimum wage policy and the imminent deregulation of petroleum prices. Significant injection of liquidity from FAAC in the third quarter coupled with the impact of AMCON recapitalizing intervened banks to the tune of N1.6 trillion will both add to inflationary pressures.
South Africa and Egypt have five banks each, Morocco has three while Togo, Angola and Mauritius have one each.
With the first listing published in 1970, The Banker Top 1000 ranking has for over 41 years served as a credible source for the measurement of the stability of global banks along with in depth analysis of the global financial industry.
In the 2011 ranking, the United States of America maintains number one position through Bank of America, followed by JP Morgan Chase & Co., while HSBC of the United Kingdom moved to third from fifth ranked position last year
New comers to the top 10 compared to last year are Mitsubishi UFJ Financial Group Japan, China Construction Bank Corporation and Bank of China while those who did not make the top 10 this year compared to last year are BNP Paribas, France; Barclays Bank, UK and Banco Santander, Spain.
The rankings are based on the definition of Tier One Capital as set out by Basel’s Bank for International Settlements (BIS) and the object of the survey is to show the banks’ soundness in relation to the Basel requirement of a minimum ratio of Tier One Capital to risk-weighted assets of 4 per cent (increasing to 7 per cent by 2019) and a minimum ratio of total capital to risk-weighted assets of 8 per cent.
Nigeria’s central bank may raise its benchmark interest rate tomorrow for the fourth time this year to bring borrowing costs above inflation and slow price-growth to below 10 percent, according to a survey of analysts. Bank Governor Lamido Sanusi will raise the monetary policy rate to 8.5 percent from 8 percent, said London-based analysts Razia Khan at Standard Chartered Plc, Samir Gadio of Standard Bank Plc and Alan Cameron at CSL Stockbrokers Ltd. He is due to announce the decision in a televised press conference at 2.30 p.m. local time. "The debate is not about whether the MPR keeps rising - we are convinced it will - but how quickly it will rise," Cameron said in an e-mailed note on July 22. "We are still a long way from positive real interest rates."
Nigeria’s central bank may raise its benchmark interest rate tomorrow for the fourth time this year to bring borrowing costs above inflation and slow price-growth to below 10 percent, according to a survey of analysts.
Bank Governor Lamido Sanusi will raise the monetary policy rate to 8.5 percent from 8 percent, said London-based analysts Razia Khan at Standard Chartered Plc, Samir Gadio of Standard Bank Plc and Alan Cameron at CSL Stockbrokers Ltd. He is due to announce the decision in a televised press conference at 2.30 p.m. local time.
"The debate is not about whether the MPR keeps rising - we are convinced it will - but how quickly it will rise," Cameron said in an e-mailed note on July 22. "We are still a long way from positive real interest rates."
Inflation slowed in June to 10.2 percent from 12.4 percent the month before after the naira strengthened against the dollar, easing import costs. The central bank of Africa’s top oil producer has raised rates as it attempts to slow inflation that peaked at 15.6 percent in February of last year and tries to stem a slide in the local currency. The naira has strengthened 2.7 percent against the dollar since June 1.
"Even though the naira has been firmer in recent weeks, demand for foreign exchange remains elevated and foreign capital is unlikely to really start flowing in until positive real rates are achieved," Cameron said.
Plans by President Goodluck Jonathan to end fuel subsidies this year may also push prices higher.
Most members of the monetary policy committee "seem to be keenly aware of the impact that fuel price deregulation could have and for this reason are likely to continue voting for hikes," Cameron said.
The inflationary pressure is escalating and at 12.8 percent inflation rate recorded at the ending of first quarter of 2011 is not showing any sign of coming down. According to the data coming from the National Bureau of Statistics (NBS) the February inflation rate stood at 11.1 percent and since then has increased to 12.8 percent at the month of March.
The Central Bank of Nigeria (CBN) maybe gradually losing its grip on the rising inflation with its primarily application of monetary policy and should sought the aid of the presidency to utilize trade and fiscal policies to solve the problem of the persistent double digit inflation.
The difference between months of February and March Composite Consumer Price Index (CPI), a tool to measure inflation rate stood at 1.37 percent. That is not a good development.
The deduction to be made is that the power of monetary policy that comes with the usage of interest rate to hold a grip on inflation is waning. A while ago the Central bank of Nigeria raised the monetary policy rate from the previously 6.5 percent to 7.5 percent but it did not necessarily have any effect on the surging inflationary trend. Instead of the interest rate to be de-escalating rather it is accelerating at 1.7 percent, giving the month of March a higher interest rate at a double digit of 12.8 percent.
The Governor of Central Bank of Nigeria (CBN), Mallam Sanusi Lamido attributed the surging inflation to rising food prices and energy cost. There is no doubt that the chieftain of CBN understood quite well what the beef is all about. But the reasons he tendered for the rising inflation are secondary and insufficient. The fundamental problem that Nigeria has is its major reliance on importation for essential commodities needed in the country. These are the primary problems that are making the inflationary pressure to be going up. Nigeria imports food, textiles and refined petroleum from abroad. The domestic oil refineries are not producing at optimum levels and importation becomes necessary with the subsidy.
In the consumer price Index (CPI) food and energy products are quite significant because these are products needed by all the sectors of the population for surviving and for the economy to thrive. With these importations Nigeria is exposed to global changes in prices of food and
petroleum products. Therefore as the prices of oil and food increases due to global demand and anxiety in the market that subsequently has effect on economy of Nigeria and put untold pressure on inflation.
The lowering and control of inflation in Nigeria for sustainable growth must be strategically planned and implemented. Monetary policy with its Interest rate can be utilized as in tactical approach to limit the power of inflation at a short term but in long term more should be done. The idea is to maintain a sustainable inflation rate at a single digit for a long term economic growth and development.
The executive of the government has an important role to play in shaping the economic destiny of the nation and not abandoning the battle to defeat and tame inflation to the bureaucrats at Nigerian apex bank. To all and sundry it is becoming self-evident that the tightening of monetary policy has a limited effect in long term prospects waned and as the fundamental problems that plagues the economy persisted.
The Nigerian annual economic growth is cruising at a comfortable level of above 7 percent but the increasing inflationary pressure is about to do one or two to the economy. Inflation by discouraging of the investors and by severely weakening of the country's currency naira can slow down economic growth and probably reverse the net gain effect.
This is not the time for government to fold their hands and become reluctant observer. But no one is asking the executive arm of the government to weaken the independence of the Central Bank by intervening in the affairs of the autonomous apex bank. The financial actors and the Economic gatekeepers in the government must be pro-active, strategic and pragmatic. The executive arm must be serious about cutting down on importation and fixing the oil refineries in the country to avoid refining of petroleum abroad.
This is time to be serious and not time for empty postulations, for we all can agree on what must be done. The government should work with textile and cement importers to find ways to slow down importation while increasing the usage of local materials for production. Nigeria has abundant raw materials for manufacturing cement and textile. The importers should be given tax breaks and other incentives that will compel them to look into local production with the home grown raw materials.
The rising price of food including corn and rice are contributing to the rising inflation. There is a global demand for some of Nigeria's staple food that is imported. Nigerian government should be in partnership with large scale domestic farmers without being overbearing to them. Investment in research and development in the agriculture becomes necessary in order to find the solution to the problems of food storage and preservation. Food preservation will be needed to boost higher food production and sustainability therefore cutting down on food importation. Monetary policy as tool to control rising inflation is waning therefore CBN must look beyond its monetary policy tool to cool off inflationary rising temperature.
Emeka Chiakwelu is the principal Policy Strategist at Afripol. Africa Political and Economic Strategic Center (Afripol) is foremost a public policy center whose fundamental objective is to broaden the parameters of public policy debates in Africa. To advocate, promote and encourage free enterprise, democracy, sustainable green environment, human rights, conflict resolutions, transparency and probity in Africa.