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Deregulation: Inflation rate worries CBN

By Emma Ujah, Abuja Bureau Chief
ABUJA — The Central Bank, CBN, has expressed concern over the anticipated inflationary effects of the proposed deregulation of the downstream sub-sector of the nation’s oil industry.

Briefing the press on the outcome of the 66th Monetary Policy Committee (MPC) meeting in Abuja yesterday, the CBN governor, Mr. Lamido Sanusi, said various monetary and fiscal measures had reduced the average headline inflation to 10.4 per cent in September, lower than the 12.6 per cent in the preceding month but that this trend could be impacted upon negatively by deregulation.

His words: “the committee observed that while inflation has decelerated, it is important to recognise that seasonal factors and the planned deregulation of the prices of petroleum products pose a major risk to inflation outlook in the near to medium term.

“It is this context that heightens the criticality of the policy dilemma now being faced by the CBN.

“Providing further impetus to the current accommodative monetary policy could be inflationary in the short to medium term whereas the gap between the likely output growth and the trend rate of growth as well as the fragility of economic recovery in many of the systematically important countries point to the need for maintaining monetary accommodation along with reasonable fiscal impetus.”

Interest rate remains at 6%

The governor added that after a comprehensive review of the economy, in general, and the banking sector in particular, it was decided that the Monetary Policy Rate, MPR, should remain at 6 per cent.

He however announced an asymmetrical corridor of interest rates around the MPR, saying, “the rate on the standing lending facility will remain at 200 basis points above the MPR, while the rate on the standing deposit facility will be 400 basis points below the MPR”.

Sanusi said part of his administration’s strategy to strengthen the sector was the steps taken to establish the Asset Management Company, AMC, which Bill, he said, was already with the Minister of Justice and Attorney General. The Bill, he added, could reach the National Assembly next week.

“Purchase of loans by banks under the AMC will be based on terms aimed at strengthening the balance sheets with a focus on asset quality, improving liquidity and capital adequacy, as well as, on reducing debt overhang relating to the stock market in order to stimulate activity in the capital market”, he explained.

Other decisions announced yesterday were to lift the temporary ban placed by the CBN on the use of Bankers’ Acceptances and Commercial Papers, with effect from the 16th of this month.

The 1 per cent general provision on performing loans contained in the existing prudential guidelines has also been waived to stimulate credit growth and strengthen banks’ balance sheets.

Sanusi disclosed that the nation’s foreign reserves stood at $43.05 billion at the end of September, which represented about $1.6 billion over the figure as at August this year.

On the raging debate over the possibility of prescribing a tenure for bank Managing Directors, the CBN boss said final decisions on guidelines for the management of banks were yet to be reached and that all stakeholders would be allowed to make input at the end of the current reforms.

He reiterated that he was not interested in taking over banks as some people had alleged, saying “we are not interested in owning the banks and we are not interested in punishing shareholders who are not involved in the mismanagement of the institutions.”

The CBN boss stressed that some of the banks’ MDs and Executive Directors who were making wild accusations on the reforms were not genuine shareholders as they bought the shares with money taken from balance sheets of the institutions and that such shares should be cancelled.

Said he: “we have dwelt within our primary focus; protect depositors’ money. We are now at the stage where we are trying to protect shareholders and maximise their values.

“Look, some of the people who claimed to be shareholders in the banks were not shareholders.  They took money from the banks’ balance sheets, bought shares. They did not pay a single kobo for those shares.”


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