Sanusi canvasses legal framework for oil benchmark

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…As CBN retains MPR at 12%

From ISAAC ANUMIHE, Abuja

Central Bank of Nigeria (CBN) Governor, Sanusi Lamido Sanusi, yesterday canvassed for a legal framework to determine oil benchmark prices in the budget. This is as the Monetary Policy Committee retained the Monetary Policy Rate (MPR) at 12 per cent, with a corridor of plus or minus 200 basis points around the mid point. Other policy measures arrived at by the committee was the retension of Cash Reserve Requirement at 12 per cent and the Liquidity Ratio at 30 per cent.

Speaking at the end of the 86th edition of the Monetary Policy Committee (MPC) meeting in Abuja, the Governor said that a legal framework for the determination of the oil benchmark will eliminate the controversy that always arises between the executive and the legislature each time it is determined. However, he said since the factors underpinning the inflationary pressures were mainly structural, a monetary response may not be appropriate this time.

According to the governor,   the committee was then faced with the choices of an increase in rates in response to the uptick in the headline and food inflation, a reduction in rates in view of declining core inflation and GDP growth and retaining the current monetary policy stance in view of conflicting price signals and global uncertainties, adding that the committee by a unanimous vote decided to maintain the current policy stance of retaining the Monetary Policy Rate (MPR) at 12 per cent with a corridor of plus or minus 200 basis points around the mid point.

However, he said that the Nigerian economy is currently experiencing growth challenges not previously anticipated by policy-makers. The apex bank boss stated that because of the growth challenges the economy is going through,   the National Bureau of Statistics had revised the Gross Domestic Product (GDP) for fiscal 2012 downwards to 6.61 per cent from the earlier projection of 6.85 per cent. “The estimates revealed a real GDP growth rate of 6.48 per cent in the second quarter of 2012, up from 6.39 per cent in the second quarter but lower than the 7.37 per cent recorded in the corresponding period of 2011,” the governor noted.

To this effect, he explained  that the committee traced the growth challenges to the decline in the contribution of oil sector to growth, which became apparent in the last half of 2011. Also,  he noted  the decline in the contribution of agriculture sector to growth since Q3 2011 in spite of investment in agricultural transformation initiatives of the Federal Government. Following this, the  governor disclosed further that the growth challenges in the near to medium term would be further compounded by the recent flooding in several parts of the country even when the cost to the economy was yet to be estimated. For him, the inflationary pressure which re-emerged in October2012 was  a contributory factor to the growth challenges.

He observed that  the year-on-year headline inflation inched up to 11.70 per cent in October 2012 from 11.3 per cent in September while food inflation increased to 11. 1 per cent from 10.2 per cent in September. The major drivers of inflation, Sanusi remarked,  were food and housing, electricity, gas and other fuels. Though the money market rates have moderated , the governor however, expressed the concern of the committee over the increase in the average maximum lending rates from 23.45 per cent to 24.65 per cent. In spite of the unfavourable domestic indices, the governor expressed the delight of the committee in the accretion of the external reserves which stood at US$45.68 billion as at November 15, 2012, representing an increase of US$10.27 billion or about 29 per cent from the level of US$35.41billion at end June 2012.

According to him,  the increase in the foreign reserves level, is mainly by proceeds from crude oil and gas sales and crude oil-related taxes and reduced funding of Wholesale Dutch Auction System due to increased inflow of foreign direct investment.

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