CBN wants NASS, Presidency to relinquish powers to fix oil benchmark

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) has proposed that neither the federal government nor the National Assembly (NASS) should fix the oil price benchmark for the national budget. Rather, it said, an independent legal structure should be set up to take over this responsibility in order to avoid the rancour between the executive and NASS over what oil benchmark should be used for the national budget.
The committee also decided by a unanimous vote to maintain the current policy stance by retaining the Monetary Policy Rate (MPR) at 12 per cent with a corridor of +/- 200 basis points around the midpoint, retaining the Cash Reserve Requirement (CRR) at 12.0 per cent and the Liquidity Ratio at 30 per cent.
CBN governor Malam Sanusi Lamido Sanusi, who kicked against subjecting the oil benchmark price to political interference and interests, said government should borrow a leaf from the Chilean experience with regard to the setting of the parameters for the preparation of the national budget by an independent body.
Briefing newsmen at the end of the 86th MPC meeting yesterday in Abuja, Sanusi said that maintaining the US$75/barrel proposed by the fiscal authorities has become even more critical in light of evidence that output projections may have been overly optimistic.
The committee, nonetheless, commended the fiscal authorities for keeping the fiscal deficit firmly in line with the 2012 budget and improving the revenue profile of the federal government by plugging several leakages.
“With regard to the balance sheet of the federal government, the committee was of the view that it has become imperative to shift away from looking at the size of the deficit and borrowing alone to emphasizing the quality of expenditure and decisions on the allocation of resources. It called on the government to significantly increase capital spending and increase its focus on improving on governance and transparency in the public service,” he said.
In arriving at its decision to retain the policy rates, Sanusi said, the committee noted that developments in the global economy characterized by general uncertainty on the back of the deceleration in global growth and sustained fragile financial conditions, weakening labour and housing markets and deteriorating public and private balance sheets across advanced and emerging economies have implications for the domestic economy and, therefore, demand careful consideration in arriving at an appropriate decision of monetary policy.
He stated: “Developments in the domestic economy in the past three months highlight some new pressure points to macroeconomic stability. …despite the high interest rates, additional shocks to the economy emanating from the devastating floods, imported inflation and the upward adjustment in electricity tariffs continue to stoke inflationary pressure.
“The conflicting price signals coming from the latest inflation numbers from the National Bureau of Statistics, with headline and food inflation trending upwards, while core inflation rate continued to moderate for the fourth consecutive month, has created uncertainty as to the appropriate policy stance at this time.
“However, since the factors underpinning the inflationary pressures were mainly structural, a monetary response may not be appropriate at this time.
“Furthermore, the committee observed that while there were compelling arguments for monetary easing at this time based on the continuous moderation of core inflation, slowdown in GDP growth and evidence of fiscal prudence, the short-term gains may not be sufficiently adequate to overturn the long-term implications of sending a wrong signal that the tightening cycle was permanently over.”
In view of these developments, the CBN governor said, the committee was faced with three choices: an increase in rates in response to the uptick in headline and food inflation, a reduction in rates in view of declining core inflation and GDP growth, and retaining current monetary policy stance in view of conflicting price signals and global uncertainties.
Sanusi said the committee considered and rejected option 1 as being potentially pro-cyclical considering the structural nature of recent inflationary pressures. While acknowledging the merit of the arguments in favour of option 2, it was also rejected as likely to send wrong signals of a premature termination of an appropriately tight monetary stance.

Jonathan shops for $1bn for Yar’Adua projects 

 President Goodluck Jonathan yesterday informed the Senate that the federal government needed to issue a $1billion Euro Bond to enable it to continue with the programmes initiated under the administration of the late President Umaru Musa Yar’Adua.
He also told the senators, in a letter that was read on the floor at the plenary, that he plans to issue a further $100million Diaspora Bond for the same purpose.
Also, the president in the same letter told the senators that he had carried out two amendments to the 2012-2014 Medium-Term External Borrowing Plan. He said that, first, he would like to include $200m water supply project being planned for Rivers State, explaining that the project would be financed by the African Development Bank and will be provide potable water to residents of Rivers State.
“Second, the federal government is currently developing a low-income housing finance facility to support the provision of affordable homes for Nigerians. This scheme will be financed using a $300million credit facility from the World Bank,” he wrote. “We would like to swap this new $300million facility with the proposed guarantees for the power sector in the draft borrowing plan, thereby ensuring that we do not increase the overall size of loans proposed in the external borrowing plan.”