By Amaka Agwuegbo
The Monetary Policy Committee (MPC) has said the recent weakening of growth globally will most likely not lead to a double-dip recession is not very likely.

sanusiIn a communiqué issued after its review of domestic economic conditions during the first eight months of 2010 and the challenges facing the Nigerian economy against the backdrop of developments in the international economic and financial environments, the MPC said the softening of growth could be seen as a natural adjustment from a period of unsustainably rapid stimulus-driven activity from mid-2009, to a slowing phase of consolidation.

Signed by the Central Bank Governor, Lamido Sanusi, the communiqué said “On the domestic front, the MPC noted the relative stability achieved in the financial markets, while urging greater efforts in accelerating reforms in the other sectors of the economy, to attain self-sustaining growth.

“The MPC welcomed the continuing rebound in commodity prices which is helping to support growth in commodity producing regions, including Nigeria, but reiterated the need to diversify the economy to protect the country from the vagaries of oil price volatility. The MPC believes that the inflation risk of the rebound in energy prices appears mitigated by the continuing weak private demand, good harvest, and well-anchored inflation expectations.

“The MPC observed that the impressive output growth recorded in 2009 continued in 2010. Provisional data from the National Bureau of Statistics indicates that real Gross Domestic Product (GDP) grew by 7.69 per cent in Q2 of 2010 up from 7.36 per cent recorded in Q1. GDP has been projected to grow by 7.72 and 8.19 per cent in Q3 and Q4 of 2010, respectively.

“Overall GDP growth for 2010 is projected at 7.78 per cent which is higher than the 6.96 per cent recorded in 2009. The non-oil sector is expected to remain the main driver of overall growth, with agriculture, wholesale and retail trade, and services contributing 2.40, 2.04 and 2.08 per cent, respectively.”

The MPC believes that the impressive growth forecasts reflect prospects for continuing favourable rainfall in the remaining months of the rainy season to support the production of major crops across the country, coupled with the current peace in the Niger-Delta, which has boosted crude oil and natural gas production.

The MPC reiterated its earlier position on the threat of inflationary pressure arising from several other factors including implementation of the new salary structure in the civil service, expected fiscal injections arising from electioneering expenses and the injections relating to AMCON purchase of non-performing loans of DMBs, spillover effects of the rising food prices from famine in neighboring Niger Republic and floods in Asia, deregulation of energy prices as well as the expected increase in household-spending toward year-end festivities.
“MPC believes that in order to provide the private sector with the necessary credit to grow the economy, further efforts were needed to restore confidence to the credit market and to unlock the flow of credit to the real economy. In general monetary aggregates are growing but remain below indicative benchmarks for the year.”

The MPC noted that rates at the interbank segment of the money market remained stable and low, owing to the prevailing banking system liquidity and the de-risking of the market through the CBN guarantee of the interbank transactions.

“Consequently, in August 2010, the average inter-bank call and open-buy-back (OBB) rates fell significantly to 1.26 and 1.25 per cent, respectively, representing decreases of 233 and 195 basis points from the 3.59 and 3.20 per cent recorded in the preceding month. In line with the decrease in rates at the inter-bank call and OBB segments, the 7- and 30- day NIBOR rates decreased by 62 and 196 basis points to 3.85 and 4.55 per cent, respectively, from 4.47 and 6.51 per cent in July.

“As at September, 17, 2010, inter-bank call and OBB rates increased averaging 3.56 and 2.91 per cent, respectively. Developments in retail market interest rates indicated that the retail lending rates were still relatively high.

The average maximum lending rate rose to 22.31 per cent in August 2010 from 22.27 per cent in July. However, the average prime lending rate declined to 16.89 per cent in August 2010, from 17.40 per cent in July.

“The weighted average savings rate dropped to 1.41 per cent in August 2010 from 1.62 per cent in July. The consolidated deposit rates declined to 2.27 per cent in August 2010 from 2.40 per cent in July. Thus, the spread between the average maximum lending rate and the consolidated deposit rate rose marginally to 20.04 per cent in August 2010 from 19.87 per cent in July.”

The MPC noted that the key policy challenges remained the continuing sub-optimal growth in money supply coupled with the negative growth in private sector credit as well as the subsisting high retail lending rates in the face of substantially low wholesale inter-bank and retail deposit rates.

The stability of the naira exchange rate attained in the foreign exchange market since the first half of 2009 continued into the third quarter of 2010.

“The naira exchange rate had remained stable in all segments of the market during the review period, reflecting increased confidence and the efficacy of the current exchange rate policy stance.”