A Review of the Nigerian Energy Industry

CBN retains MPR at 12%

20 September 2014, Abuja – The Central Bank of Nigeria, CBN, yesterday, retained the Monetary Policy Rate, MPR, at 12 per cent with a corridor of +/- 200 basis points around the midpoint.

Governor of the bank, Mr. Godwin Emefiele, announced this at the end of the 97th Monetary Policy Committee, MPC, meeting in Abuja.

He also said that the public sector Cash Reserve Requirement and the Private sector Cash Requirement remained at 75.0 per cent and 15.0 per cent, respectively.

Central-Bank-of-Nigeria-CBNMr. Emefiele expressed concern “that banks were holding large excess reserves averaging over N300 billion even when there were ample opportunities for productive and profitable lending to the real sector of the economy”.

He said that the situation was made worse with the injection of an additional N866 billion into the system through the redemption of maturing AMCON bonds in October.

“Given the apathy to lending, banks may be inclined more to placing these new funds in the SDF or use it to increase pressure on the exchange rate”, he said.

Banks were therefore advised to explore ways to lend such excess reserves to the real sector.

He hinted that the monetary regulators could be forced to further tighten monetary policy should the banks continue to defy entreaties to lend to the real sectors of the economy.

His words, “ordinarily, because of the size of liquidity we see in the system today, what we should have done actually is to tighten further but we would continue to monitor the liquidity system, and I can assure you that what we say in our agenda that interest rate would gradually come down is an objective that we would eventually pursue but we would continue to monitor what is happening in the Nigerian economy and all the parameters to determine whether or not we’ve attained the right time to move in that direction.

“We are going to continue to monitor what is happening in the environment. What we have seen is that instead of banks channeling what we call excess liquidity in the system into the productive or certain targeted sectors of the economy, what the banks are doing is either placing these monies in treasury bills or even investing them at the CBN window”.

Reserves raises to $40.7b
The CBN boss put the nation’s foreign reserves as at three days ago, September 17, at $40.7 billion, up from $39.1 billion at the end of.

The current level of external reserves provides approximately 7 months of imports cover.

Challenges ahead
Mr. Emefiele, noted that going forward, there would be challenges that the monetary environment would face, especially, with the elections at the corners.

His words, “the policy challenges, the Committee noted, would include sustaining the stability of the naira exchange rate, managing the vulnerability to capital flow reversal, building fiscal buffers to insure against global shocks, managing inflation and exchange rate expectations and safeguarding the financial system stability as well as a buildup in election related spending”.

Concerns over insurgency
The continued insurgency in the Northern part of the country was a source of real worry , according to the CBN boss, especially as many farmers in the region have been displaced.

He said that the inability of most farmers in the affected region to continue their farming activities has brought about a reversal of the gains made in the match towards food security in the country, as the nation now has to depend on a lot of food imports.

“The Committee was concerned that the insurgency was forcing a switching from domestic to imported food to meet domestic shortfall with huge impact on external reserves and underscored the need to expedite action to restore normalcy to the troubled region to sustain the tempo of growth”, he said.

GDP at 6.5%
He said that s real GDP grew by 6.54 per cent in Q2, 2014 compared with 5.40 per cent in the corresponding quarter of 2013. The observed growth rate also surpassed the 6.21 per cent recorded in the Q1 of 2014.

The non-oil sector remained the main driver of growth recording 6.71 per cent in Q2, 2014; although lower than the 8.21 and 8.88 per cent recorded in Q1, 2014 and the corresponding quarter of 2013, respectively.

According to him, “the decline in growth of non-oil GDP was traced to the decline in agricultural output, construction, trade and services relative to the levels recorded in Q1, 2014.

“The slowdown in agricultural output was attributed to the insurgency activities in the North Eastern axis and some parts of the North Central States which led to displacement of farming communities, thereby limiting agricultural activities and, hence, output from that region.

OilThe oil sector grew by 5.14 per cent in Q2 2014, a marked reversal from the decline recorded in the preceding four quarters.

The governor said that the efforts by the federal government to restore normalcy to the sector was important and that it should continue to address vandalism of oil facilities and theft of crude oil in the Niger Delta region with a view to raising oil outputs and gas supply to the power plants
*Emma Ujah – Vanguard

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