CBN Urges Govt to Refrain from “Unnecessary Subsidies”
- By Simeon Ogoegbulem
- Published November 30th, 2010
- News
- Unrated
THE Central Bank of Nigeria (CBN) last week urged the federal government to refrain from “unnecessary subsidies that add to government expenditure and debt.” CBN, at the end of its Monetary Policy Committee (MPC) meeting, also frowned at the increasing inflationary trend in the country.
Mallam Sanusi Lamido Sanusi, governor of CBN, while briefing the media at the end of the two-day meeting, noted that the growing inflationary trend which stood at 13.4 per cent in October requires tightening measures.
Sanusi however said it required some caution because of possible negative effect it may generate in the economy, stressing that the solution requires both fiscal and monetary measures.
He highlighted major concerns noted by the MPC as the elevated inflation levels; rising government expenditure and borrowings with the possible crowding out effects on the private sector and demand pressure in the foreign exchange market, leading to reduction in external reserves.
Sanusi explained that in the exercise of caution in order not to endanger the economy by taking stringent immediate measures to restrict the inflationary pressures on the economy, the MPC resolved.
“To retain the Monetary Policy Rate (MPR) at 6.25 per cent to adjust the corridor to +/- 200 basis points, implying Standing Lending Facility (SLF) rate of 8.25 per cent, and Standing Deposit Facility (SDF) rate of 4.25 per cent. The committee also decided to maintain the policy stance of a stable exchange rate and continued to monitor inflationary trends with a view to taking appropriate steps as and when necessary.
Sanusi assured that the committee would seek to exert pressure on aggregate demand, thereby helping to lower inflation expectations just as it would stand ready to provide adequate and timely liquidity to support credit dynamics that would sustain fiscal mechanisms to bolster growth.
Citing statistics released by the National Bureau of statistics, he said “the year-on-year headline inflation (rebased) stood at 13.4 per cent in October 2010 relative to 13.6 per cent in September 2010. Food inflation was 14.1 per cent in October, down from 14.6 per cent in September. However, core inflation rose to 13.2 per cent in October from 12.8 per cent in September.
“The persistence of high inflation remains a major challenge, when viewed against the relatively good harvests, improved supply of petroleum products and weak expansion of credit to the private sector,” he said. “This reality further underscored the need for addressing supply-side constraints in the medium to long term and the urgent need to restrain debt-financed government spending in the short term.
“The MPC reiterated its earlier position on the threat of inflationary pressure arising from high inflation expectations, calling for stronger fiscal prudence to support the monetary policy stance. This is particularly critical for improving the dynamics of policy coordination.”
Sanusi said the view of the committee is that the solution requires both fiscal and monetary measures and reiterated the need to eliminate unnecessary subsidies that add to government expenditure and debt. “There is need also for continuing reforms in the economy particularly in the energy and agricultural sectors to curb high import bills through appropriate fiscal policies,” he said.
He expressed the commitment of the MPC to exchange rate stability in order to attract foreign direct investment and anchor expectations, adding that in view of the low price elasticity of demand for imported necessities, depreciation of the currency would not in itself address the structural problem of import-dependence.
Sanusi said that real Gross Domestic Product (GDP) is estimated to grow by 8.29 per cent in the fourth quarter of 2010, up from 7.86 per cent recorded in the third quarter just as the overall GDP growth for 2010 is projected at 7.85 per cent compared with 6.96 per cent recorded in 2009
He expressed the satisfaction of the MPC on the progress made thus so far on the power sector, but stressed the need for renewed focus on the petroleum and agricultural policy sectors. Sanusi however maintained that the continued dependence of the country on imported food and energy, which is totally avoidable, is one of the main sources of erosion of Nigeria’s foreign reserves.
From statistics released, the total foreign exchange inflow in October was $2.38 billion, representing a decrease of $0.32 billion or 11.85 per cent below the $2.70 billion recorded in the preceding month just as the total outflows or payments in October amounted to $3.46 billion, a decrease of $1.62 billion or 31.89 per cent compared with $5.08 billion recorded in the preceding month.
Mallam Sanusi Lamido Sanusi, governor of CBN, while briefing the media at the end of the two-day meeting, noted that the growing inflationary trend which stood at 13.4 per cent in October requires tightening measures.
Sanusi however said it required some caution because of possible negative effect it may generate in the economy, stressing that the solution requires both fiscal and monetary measures.
He highlighted major concerns noted by the MPC as the elevated inflation levels; rising government expenditure and borrowings with the possible crowding out effects on the private sector and demand pressure in the foreign exchange market, leading to reduction in external reserves.
Sanusi explained that in the exercise of caution in order not to endanger the economy by taking stringent immediate measures to restrict the inflationary pressures on the economy, the MPC resolved.
“To retain the Monetary Policy Rate (MPR) at 6.25 per cent to adjust the corridor to +/- 200 basis points, implying Standing Lending Facility (SLF) rate of 8.25 per cent, and Standing Deposit Facility (SDF) rate of 4.25 per cent. The committee also decided to maintain the policy stance of a stable exchange rate and continued to monitor inflationary trends with a view to taking appropriate steps as and when necessary.
Sanusi assured that the committee would seek to exert pressure on aggregate demand, thereby helping to lower inflation expectations just as it would stand ready to provide adequate and timely liquidity to support credit dynamics that would sustain fiscal mechanisms to bolster growth.
Citing statistics released by the National Bureau of statistics, he said “the year-on-year headline inflation (rebased) stood at 13.4 per cent in October 2010 relative to 13.6 per cent in September 2010. Food inflation was 14.1 per cent in October, down from 14.6 per cent in September. However, core inflation rose to 13.2 per cent in October from 12.8 per cent in September.
“The persistence of high inflation remains a major challenge, when viewed against the relatively good harvests, improved supply of petroleum products and weak expansion of credit to the private sector,” he said. “This reality further underscored the need for addressing supply-side constraints in the medium to long term and the urgent need to restrain debt-financed government spending in the short term.
“The MPC reiterated its earlier position on the threat of inflationary pressure arising from high inflation expectations, calling for stronger fiscal prudence to support the monetary policy stance. This is particularly critical for improving the dynamics of policy coordination.”
Sanusi said the view of the committee is that the solution requires both fiscal and monetary measures and reiterated the need to eliminate unnecessary subsidies that add to government expenditure and debt. “There is need also for continuing reforms in the economy particularly in the energy and agricultural sectors to curb high import bills through appropriate fiscal policies,” he said.
He expressed the commitment of the MPC to exchange rate stability in order to attract foreign direct investment and anchor expectations, adding that in view of the low price elasticity of demand for imported necessities, depreciation of the currency would not in itself address the structural problem of import-dependence.
Sanusi said that real Gross Domestic Product (GDP) is estimated to grow by 8.29 per cent in the fourth quarter of 2010, up from 7.86 per cent recorded in the third quarter just as the overall GDP growth for 2010 is projected at 7.85 per cent compared with 6.96 per cent recorded in 2009
He expressed the satisfaction of the MPC on the progress made thus so far on the power sector, but stressed the need for renewed focus on the petroleum and agricultural policy sectors. Sanusi however maintained that the continued dependence of the country on imported food and energy, which is totally avoidable, is one of the main sources of erosion of Nigeria’s foreign reserves.
From statistics released, the total foreign exchange inflow in October was $2.38 billion, representing a decrease of $0.32 billion or 11.85 per cent below the $2.70 billion recorded in the preceding month just as the total outflows or payments in October amounted to $3.46 billion, a decrease of $1.62 billion or 31.89 per cent compared with $5.08 billion recorded in the preceding month.
