There are indications that the Central Bank of Nigeria (CBN) may in the course of this year move monetary policy away from addressing problems in the banking sector to other macro-economic challenges, especially fighting inflation.
Due to the crisis in the banking sector last year, the banking watchdog moved to support the banking system even at the risk of inflation. For instance, it injected N620 billion into nine rescued banks and also reduced the benchmark interest rate, the Monetary Policy Rate (MPR) severally.
A source at the Monetary Policy Department of the apex bank told THISDAY: “A shift in the direction of monetary policy is expected by the second half of this year when significant progress would have been made in further strengthening the banks, as contained in the second phase of the reforms.”
He added: “Supporting the banking system was a more macroeconomic priority last year. I can also tell you that if for instance, inflation rises to 15 per cent, which is unlikely, we will have to look at our strategy the second time.”The Monetary Policy Committee of the CBN will be meeting early next month to review the macro economy and adopt policies for the coming months. Nigeria's inflation rate (year on year) rose to 12.3 per cent last month (January) from 12 per cent the previous month.
According to the data released by the National Bureau for Statistics (NBS), growth in food prices, which form the bulk of the inflation index basket rose to 14 per cent year-on-year from 13.6 per cent last December. Analysts believe that as the authorities make progress with the reforms, monetary policy will be focusing inflation away from the concern about the collapse of the banking sector.
Writing on 'Nigeria Macro View' last January in “Citi,” a publication of Citigroup, the global financial institution expressed the view that with the problems in the banking sector set to recede in 2010, the CBN may return its focus to the fight against inflation as the year progresses.
“We think that the CBN is likely to raise the MPR, even if only modestly during first half, 2010,” said Citigroup.Nigeria's average annual inflation (2008 to 2009) is put at 12 per cent, while 2006 to 2007 recorded 6.9 per cent. It was in the double digits from 2001 to 2005. Analysts at Citigroup said at the Eurofinance Conference sponsored by the bank in Lagos last week that it is difficult to project Nigeria's inflation trend in the current year.
Managing Director, Citibank Nigeria, Emeka Enuwa, and the Director, Africa Economists, Citigroup, David Cowan, said in a joint presentation on 'The Keys to Economic Security' that “the uncertainty of Nigeria's 2010 inflation trend stems from the fact that fiscal policy will remain relatively loose to continue to support growth and because the current year is effectively a pre-election year.” The experts said: “A decision to liberalise fuel process has the tendency to increase inflation just as food price inflation looks set to remain high due to poor harvest.”
(Source:ThisDay)
