CBN retains lending rate at 12 per cent, warns against review of 2012 budget fundamentals

The Central Bank of Nigeria (CBN) rose from its first monetary policy committee (MPC) meeting today in Abuja, opting to retain lending rate at 12 per cent, while cautioning against a review of the fundamentals for the 2012 budget.

The apex bank’s governor, Lamido Sanusi, said the committee decided during the meeting to keep the rate at the symmetric corridor of + or – 200 per cent basis points and the Cash Reserve Ratio (CRR) at 8 per cent, while the Minimum Liquidity Ratio (MRR) was retained at 30 per cent, with subsisting midpoint of exchange rate at N155 to the dollar and a band of + or – 3 per cent

Mr. Sanusi’s warning was against the background of recent moves by the National Assembly to raise the crude oil benchmark price from the $70 per barrel proposed by the executive in the 2012 Appropriation Bill, saying to doing so could create serious macroeconomic crisis for the economy.

The Senate Joint Committee on Finance, Appropriations and National Planning, Economic Affairs and Poverty Alleviation had about 10 days ago canvassed the slight adjustment of the benchmark price for the 2012 Appropriation Act to $75 per barrel as against the revised $70 recommended by the executive on October 4, 2011.

The Committee, in its report on the 2012-2015 Federal Government Medium –Term Fiscal Framework submitted to the upper Legislative Chamber, said since  the $75 per barrel benchmark price target could be achieved in view of the fact in the 2011 fiscal year,  the average market price had stabilised at $83.50.

“A benchmark price of $75 had been set for 2012-2015 medium term periods before a downward review by the Federal Ministry of Finance to $70 on the 31st of October, 2011,” the committee noted. “In line with the explanation given, this price was established both by a combination of a five and ten year moving average to guard against shocks from a drop in demand as well as forecast of future prices based on expected events, incluidng impact of the Euro Zone debt crises, poor gross domestic products (GDP) of Organisation of Economic Cooperation and Development (OECD) countries.

But, the CBN governor stressed the need to ensure fiscal and exchange rate stability as well as the sustenance of the high output growth of the economy as desirable steps toward consolidation of recent achievements in recent years.

Noting the oil prices outlook in the short term, the governor said the current exchange rate band should be maintained in order to achieve moderate stability in the foreign exchange market.

He pointed out that it would be more feasible if the $70 per barrel benchmark price is retained rather than risking a higher benchmark that could create serious problem of implementation in the budget and macroeconomic distortions in the economy if there is any crisis in the international oil market.

The commended the Federal Government for the partial removal of subsidy on PMS, which it said would invariable have salutary effects on foreign reserves and exchange rate as well as investment in oil and gas and the real sector and public finances.

The recent commitment by the Federal Government towards the passage of the Petroleum Industry Bill (PIB), he said, would further complement the fuel subsidy removal gains and move the country  on the path of sustainable development, pointing out that the negative impact of the fuel subsidy removal on the general price level has recommended the speedy implementation of the palliative measures and social safety nets for the poor.