The committee reviewed the global and domestic economic environment from January to October 2013 and reassessed the short to medium term risks for inflation, domestic output, financial stability and the outlook for the rest of the year.
“Nine members voted to keep the Monetary Policy Rate (MPR) at 12 per cent plus or minus 2 per cent; private sector Cash Reserve Ratio (CRR) at 12 per cent; public sector CRR at 50 per cent and Liquidity Ratio at 30 percent,” Central Bank of Nigeria govenor, Sanusi Lamido Sanusi announced.
According to Sanusi, the decision came after the committee had considered the success of the monetary policy in attaining stability of price and exchange rates, the potential headwinds in 2014 and the goal of transiting to a truly inflation environment.
“The outlook for 2014, however, portends some potential headwinds that may lead to further tightening in monetary conditions,” he said.
Sanusi said both Quantitative Easing tapering in the US, and interest rate rises in Europe are expected in 2014, both of which will lead to pressure on the exchange rate and stock prices due to the impact of the capital flows. Domestically, as election spending is likely to also take place next year, this adds more pressure on 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 also added that the government spending in 2013 has been significantly lower than that of 2012. Nonetheless, oil revenues have continued to decline despite oil price stability and output when compared with previous years.
“As a result, Excess Crude savings have fallen from about 11.5 billion US dollars at year-end 2012 to less than 5 billion US dollars on November 14. External Reserves have remained in excess of 45 billion US dollars only because of a massive inflow in portfolio funds,” he explained.
Thus, financial markets are extremely fragile and susceptible to external shocks. The MPC then called on the fiscal authorities to rebuild buffers in the excess crude oil revenues.
“This can be done by blocking fiscal leakages in the oil sector and increasing oil revenues. The major risk on the fiscal side at present is not one of escalation or of spending but loss of revenue from oil exports.”