The Central Bank of Nigeria on Tuesday moved to check inflation ahead of the April elections by increasing the Monetary Policy Rate by 25 basis points, from 6.25 per cent to 6.5 per cent.
The MPR is the anchor rate at which the CBN lends to Deposit Money Banks for onward lending to customers and investors.
The CBN Governor, Mr. Lamido Sanusi, who addressed journalists shortly after the Monetary Policy Committee meeting in Abuja on Tuesday, said the move was in line with its commitment to maintaining price stability through monetary tightening.
He said that 10 out of the 11-member committee voted in favour of the increase, owing to threats of perceived inflation risks that might arise during the run up to the elections.
The committee also maintained the symmetric corridor at +/-200 basis points and raised the Cash Reserve Requirement Ratio by 100 basis points from one per cent to two per cent with effect from February 1, 2011.
Also, with effect from March 1, 2011, the apex bank boss said there would be an increase in the liquidity ratio by 500 basis points, from 25 per cent to 30 per cent.
Sanusi noted that the committee was concerned that the economy was not only affected by the monetary and fiscal policy measures but also by political factors.
To this end, he said that there was the need for the Federal Government to pay greater attention to the issue of security and how to manage the uncertainty in the political environment.
This, he noted, would help to boost investors’ confidence in the economy.
He said, “The committee noted that the risk of inflation is on the upward side as a result of the liquidity injections from the likely increase in government spendings in the run up to the April 2011 elections, the Asset Management Corporation of Nigeria’s purchases, rising global energy food prices and the expected pass-through to the domestic economy.
“In view of these, the committee noted that inflation remains a major concern that cannot be ignored in the short to medium term. The MPC looked at price stability and inflation and the measures taken are to check inflation and are aimed at protecting the real income of the poor people in particular.”
Sanusi added, “The committee noted that, although inflation had been trending downwards, the single-digit benchmark was not achieved in 2010 despite the relatively good harvest, improved supply of petroleum products and lower growth in monetary aggregates.
“One of the ways to keep aggregate demand in check is to restrain debt financing and government spending in the medium term. This calls for a review of subsidies and other recurrent expenditure categories that constitute a drain on national budget.”
PUNCH
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