…. Warns that $79 oil price benchmark will increase inflation
From ISAAC ANUMIHE, Abuja
Central Bank of Nigeria (CBN) yesterday retained the Monetary Policy Rate (MPR) at 12 per cent. Also, the Cash Reserve Requirement (CRR) was retained at 12 per cent, while the minimum interest rate was left at 30 per cent. Addressing newsmen at the end of the 87th meeting of the Monetary Policy (MPC) in Abuja, the CBN Governor, Mallam Sanusi Lamido Sanusi, also stated that the $79 per barrel oil price benchmark for 2013 Budget fixed by the National Assembly will cause inflation.
The National Assembly recently approved $79 per barrel benchmark, contrary to $75 per barrel oil price fixed by the Federal Government. Sanusi said that the $79 per barrel oil price benchmark will increase the already high inflation rate in the country adding that the $79 per barrel oil price benchmark was too high for an economy that is experiencing double digit inflation.
For him, it would only aggravate the already high inflation. Sanusi, who stated that the MPC meeting was convened to review the performance of the Nigerian economy in the 2012 fiscal year and chart the way forward for the economy in 2013 disclosed that the sub-Saharan African recorded robust economic growth in 2012 as the country’s Gross Domestic Product growth stood at 7.45 per cent against the 6.61 per cent recorded in 2012.
The governor stated that the MPC particularly lauded the accretion in external reserves which stood at $44.8 billion as at January 16, 2013, as against $43.84 billion of December 31, 2012. With the positive development in the external sector of the Nigerian economy as a result of increased earnings from sale of crude oil and gas and proceeds from the Wholesale Dutch Auction System, Sanusi said the external reserves would finance at least nine months of imports. Notwithstanding the increased earnings from the oil sector, the governor stated that the MPC expressed concern over low level of investment in the oil sector.
To ensure the development of the oil sector, the CBN Governor said the MPC advised the Federal Government to fast- track the speedy passage of the Petroleum Industry Bill with a view to attracting the much desired investment in the sector.
Sanusi said the committee commended the development in the power sector, but added that the committee had observed that the Nigerian capital market is still vulnerable to external shocks. He disclosed that the structure of the funding base in the market must be altered to provide the much needed immunity from external shocks. Recall that the Co-ordinating Minister for the Economy and the Minister of Finance, Dr Ngozi Okonjo-Iweala had also said that increasing the oil price benchmark will increase inflation.
She said the adoption of $75 per barrel oil benchmark for the 2013 budget falls within the standard of econometric module used by oil- dependent nations in preparing their budgets. She said the that raising the oil benchmark as being canvassed by the National Assembly could spur liquidity problem which will in turn trigger inflation.
The minister said the government arrived at the $75 oil benchmark based on econometric module which was carefully studied. “When you do this in an economy, you can’t just take the number from anywhere; you have to have the basis for developing the benchmark. So we did that.
We have a module that estimates moving average and then we put things together in order to arrive at the benchmark. But we can smoothen it out here and there to round it up. A module was used in arriving at this estimate which is very similar to what other oil- dependent countries used”, she clarified.
According to her , if higher oil benchmark was adopted as pushed by members of the House of Representatives, there is the likelihood of liquidity surge in the economy which will trigger inflation as a higher benchmark increases more money for states. “Even if you are trying to reduce the fiscal deficit for Federal Government, the states are not under the same scripture. They will be spending and that will throw a lot of liquidity in the system leading to a higher inflation which in turn, will impact on depreciation of exchange rate”.she insisted.