CBN to reduce money supply in 2014

The Central Bank of Nigeria has announced a tight monetary policy for the 2014 fiscal year, in a bid to check the excessive pressure on prices due to the 2015 general elections.

The CBN Governor, Mr. Lamido Sanusi, who made the announcement on Tuesday in Abuja, said the decision was taken by the Monetary Policy Committee of the bank.

The 12-member committee had met on Monday and Tuesday at the CBN headquarters to review the global and domestic economic environment from January to October 2013.

It also re-assessed the short-to medium-term risks to inflation, domestic output and financial stability and the outlook for the rest of the year.

The CBN governor said having considered the progress so far made this year in reducing inflation, the committee felt the outlook for 2014 would portend some challenges that could lead to further tightening in monetary conditions.

He said, “It further noted the positive impact of monetary policy in engendering a stable exchange rate regime and attracting portfolio investment, thus driving the strong recovery of asset prices on the Nigerian Stock Exchange.
“The outlook for 2014, however, portends some potential headwinds that may lead to further tightening in monetary conditions. It is also the year in which election spending is likely to take place domestically, thus bringing more pressure to bear from the fiscal side.

“As a result, the MPC is of the view that we are not yet at the end of the tightening cycle and may need to tighten further in response to these eventualities next year.”
The committee, Sanusi said, also noted that while the Federal Government’s overall spending in 2013 had not been significantly higher than in 2012, oil revenues had continued to decline in spite of the relative stability in oil price and output.

As a result of declining oil revenue, the committee said the Excess Crude savings had fallen from about $11.5bn at the end of 2012 to less than $5bn on November 14, 2013.

External reserves, he noted, had remained in excess of $45bn only because of a massive inflow in portfolio funds.

He said the implication of this was that “financial markets are extremely fragile and susceptible to external shocks.”

He added, “The MPC again calls on the fiscal authorities to rebuild buffers in the Excess Crude Account, and this can be done by blocking fiscal leakages in the oil sector and increasing oil revenues.

“Clearly, the major risk on the fiscal side at present is not one of escalation of spending but the loss of revenue from oil exports.”

The committee also adopted an inflation target of between six per cent and nine per cent for 2014.

Sanusi said since the ECOWAS heads of state had set a five per cent target at the Convergence Council, the MPC would ensure that Nigeria moved firmly into being a low-inflation environment in the medium term.

Credit: Ifeanyi Onuba/Punch