•The Managing Director/CEO of Access Bank Plc, Mr Aigbogun Aig-Imoukchade left, with the Minister for Industry, Engineer Charles Ugwu at a dinner hosted by Ovie Burme Foundation in Lagos recently. PHOTO: MOSHOOD RAJI

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The Monetary Policy Committee (MPC), has predicted that Nigeria’s inflationary trend may remain in the single digit range throughout the year.
Central Bank of Nigeria Governor Chukwuma Soludo, who revealed this recently said the MPC estimates indicate that inflation could remain within single-digit through the third quarter of the year, if necessary actions are taken.

The CBN boss said it was against that backdrop that the committee recommended the release of grains from the strategic grains reserve, in addition to the implementation of a restrictive monetary policy would be essential elements in keeping inflation under control in months ahead.

He stated that such measures had become necessary in view of the actual and potential fiscal impact on liquidity from the recent distribution of $2.008 billion excess crude oil revenue and the second tranche of excess crude distribution scheduled for June 2008. The committee he noted was insisting that the 2008 budget, as proposed contained significant increases in expenditure which could lead to heavy deficits in the next two quarters of the year.

He said: “In the light of the uncertainties mentioned above, the committee decided to raise the MPR by 50 basic points from 9.5 per cent to 10.0 per cent; issue treasury bills for liquidity management; and increase the sale of foreign exchange as the need arises.

The committee, he explained “discussed the international economic and financial situation along with a detailed review of the domestic macroeconomic developments including the implementation of the fiscal, monetary and exchange rate policies in the first quarter of 2008, and the outlook for the next two quarters. It considered the implications of the credit conditions in the global financial markets, the recent policy initiatives of the fiscal and monetary authorities in the major industrial countries, and the likely spill-over effects of the expected economic downturn in the world’s largest economy, for the Nigerian economy.”

The MPC, noted that while the domestic macroeconomic environment was generally stable in the first three months of 2008, there were many uncertainties, even as it observed that the current rate of inflation was still a matter of concern.
However, the committee expressed satisfaction on the overall stability in government securities, including the money and foreign exchange markets, stressing that the buoyancy of the equity market and the accretion to foreign exchange reserves. It also restated its commitment to sustaining monetary and price stability through the pursuit of appropriate monetary and exchange rate policies.

On inflation, the committee noted that the year-on-year (headline) inflation rose from 6.6 per cent at end-December 2007 to 8.6 per cent in January, but fell to 8.0 per cent in February 2008. The higher levels of the headline inflation in January and February relative to that of December 2007, were mainly attributable to the increase in food prices. The recent release of grains from the strategic grains reserve and the prospects of favourable weather would, however, help reduce the risks of price acceleration in the months ahead.

The MPC revealed that the expected huge fiscal injections in the months ahead and the sustained rise in asset prices, would constitute potential downside risks that need to be addressed by strengthening the current restrictive monetary policy. Speaking on the exchange rate, the committee express confidence in the fact that the naira has appreciated in the first quarter of 2008, driven mainly by rising foreign exchange inflows reflecting the continued investor-confidence in the economy, while the foreign exchange market, however, continued to function in a stable manner.

Meanwhile, Nigeria’s gross official foreign reserves rose to $59.70 billion as at March 31, 2008 and this is expected to support 38 months of current foreign exchange disbursements. In terms of monetary aggregates, the committee observed that broad money (M2) at end-December 2007 grew by 30.9 per cent compared with 30.5 per cent in the corresponding period of the preceding year.
The provisional figures indicated that the M2 grew by 20.59 per cent in the first two months of 2008, driven mainly by increases in foreign assets (net) of the banking system as well as credit to the private sector.

Credit to the private sector, according to Soludo maintained an upward trend during the first quarter of 2008, as it grew substantially by 96 per cent compared to 2007. The MPC noted, however, that the Federal Government has continued to be a net creditor to the banking system.
It observed that the inter-bank call rate rose in January, but moderated in the two months following with market conditions exhibiting stability as evidenced from the data on the volume and deals in the inter-bank market. But the spread between the inter-bank call rate and the tenored NIBOR rates, however, showed that the counterparty credit risks continue to exist. The committee urged that money market conditions be continuously monitored for purposes of effective liquidity management.