The Monetary Policy Committee (MPC) is also targeting to keep inflation at 6-9 per cent in 2014.
The outlook for 2014, the MPC said however portends some potential headwinds that may lead to further tightening in monetary conditions.
Sanusi further said that the committee resolved to “keep the Monetary Policy Rate (MPR) at 12 per cent +/- 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 per cent.
He said the year 2014 being the year in which election spending is likely to take place domestically, thus bringing more pressure to bear from the fiscal side. As a result, the MPC says it was of the view that Nigeria is “not yet at the end of the tightening cycle and may need to tighten further in response to these eventualities next year.”
Also, the committee expressed concern at the massive depletion of the Excess Crude Account (ECA) and called on the fiscal authorities to rebuild buffers in the excess crude account.
However, he said the committee “formally adopted an inflation target of 6-9 per cent in 2014 and reaffirmed its commitment to moving Nigeria firmly into being a low-inflation environment in the medium term. However, the MPC recognizes the high cost of rapid adjustment and plans to make the transition gradually.”
Regards the depletion of the excess crude account, Sanusi said the MPC called on “the fiscal authorities to rebuild buffers in the excess crude account, and this can be done by blocking fiscal leakages in the oil sector and increasing oil revenues. Clearly, the major risk on the fiscal side at present is not one of escalation of spending but loss of revenue from oil exports.”
Sanusi added that “the erosion of the fiscal buffers through the depletion of the ECA has further exposed the economy to vulnerabilities while the fall in oil revenue has left capital inflows as the only source of external reserves accretion.”
According to the CBN governor, the Federal Government debt “has also risen phenomenally along with its deposits at the deposit money banks, showing the Government as a net creditor to the system. This underscores the urgent need for the immediate implementation of the Treasury Single Account. The continued delay in returning government accounts to the Central Bank is adding to the huge cost of government debt due to poor cash flow management.”
The Committee noted the increase in external reserves to US$45.37 billion as at November 15, 2013, represented an increase of US$1.26 billion or 2.85 per cent above the level of US$44.11 billion at end- September 2013.
External reserves he disclosed increased by US$0.95 billion or 2.14 per cent on a year- on-year basis over the US$44.47 billion at end-November 2012. The Committee he said was disappointed at the low rate of reserve accretion in spite of strong oil prices; which is a result of the absence of fiscal savings.
The MPC also noted that AMCON is expected to reduce its debt by N1 trillion in December 2013. As such, the CBN has directed that AMCON redeem its Bonds for cancellation by exchanging them for FGN Treasury Bills on its books.
Consequently, the only impact of the repayment according to Sanusi was that the Balance Sheet of AMCON (and the contingent liability on the FGN from its guarantee of AMCON Bonds) will shrink by N1 trillion.
This he noted is positive for the economy and the credit rating of the FGN and the banking industry. Its impact on the markets he explained “will be minimal given that only AMCON’s Balance Sheet is affected significantly and AMCON is not a player in these markets.”