sanusi lamido sanusi
Despite the setback suffered Thursday by the federal government in its bid to enlist the support of the House of Representatives towards the removal of oil subsidy, Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido, yesterday maintained that the policy would help ease the pressure that had confronted the naira in recent times.
The CBN helmsman also argued that the policy would also be beneficial for the country’s forex reserves which had also suffered some depression.
Sanusi was quoted by Bloomberg in Port Louis, Mauritius, where he was a guest speaker at a Bank of Mauritius event. Sanusi, however, pointed out that the policy would have a “short-term” impact on inflation.
The federal government plans to scrap fuel subsidy to help save N1.2 trillion ($7.5 billion) in state spending next year. But the House of Representatives yesterday rejected the proposal as the lawmakers were said to have voted against the policy. However, the Senate is yet to decide.
The naira’s decline against the dollar in the interbank market had added to import costs, lifting the inflation rate to 10.5 percent in October, above the CBN single-digit target. The naira stood at N161 to a dollar on Friday. The CBN had lowered its official target for the naira to N155/$1 last month, from the N150/$1 it stood previously.
“The inflationary effect may be exaggerated because diesel is already deregulated and motorists in some parts of the country don’t pay the subsidised price,” Sanusi said, adding that price pressure in Nigeria was a bigger concern than economic growth.
According to the banking sector regulator, “unless there is a massive threat to reserves, the case for loosening monetary policy has not been made yet. At the moment, inflation remains the threat. There is no clear risk to growth.”
The CBN’s Monetary Policy Committee (MPC) had kept its benchmark rate unchanged at a record 12 percent for the first time this year at its meeting held last month.
However, Chief Economist at FBN Capital Limited, Gregory Kronsten, noted that: “Unless you get a sign that the economy is really slowing or that foreign exchange demand falls sharply I think rates will stay on hold.”
On his part, the Emerging-Markets Strategist at BNP Paribas SA, London, was also quoted to have added: “The performance of the naira since August has been very poor and this will likely feed through to inflation as well.”
Commenting on the planned fuel subsidy removal, the CBN Governor said further: “In the short term we will battle with inflation. Unless there is any serious second-round effect, we will bring it down again gradually. Certainly, there will be a first round impact and supply side shocks of the removal of the subsidy.”
According to him, the fiscal authorities were taking a “cautious” approach to the European crisis, budgeting for an oil price of $70 a barrel in next year’s spending plan, down from $75.
“That’s a good sign for us as monetary authorities as fiscal authorities are very much aware of the risks involved and are formulating their budget projections on the assumptions that those risks might crystallise,” he said.
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