NIGERIA: CBN MAY RAISE PRIVATE SECTOR CRR TO 18%

As inflation rate rose in the fifth consecutive month in July thereby posing a threat to price stability, the Monetary Policy Committee (MPC) may increase the cash reserve requirement (CRR) from 15 per cent to 18 per cent.

The Managing Director/Chief Executive Officer, Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane predicted this in his latest monthly economic news and views presented at the Lagos Business School’s executive breakfast meeting, a copy of which was obtained by THISDAY at the weekend.

Headline inflation increased marginally to 8.3 per cent in July. Inflation has been on an upward trend since March this year.

Data gathered from the National Bureau of Statistics (NBS) showed that the Consumer Price Index (CPI), which stood at 7.80 per cent in March 2014, climbed to 7.90 per cent in April, eight per cent in May, 8.20 per cent in June and 8.30 per cent in July.

Therefore, Rewane argued that following the trend, the Central Bank of Nigeria’s (CBN’s) MPC which meets next week “could take another look at the CRR and increase private sector CRR from 15 per cent to 18 per cent.”

The CRR on private sector funds was increased to 15 per cent, from 12 per cent in the first quarter of the year. On the other hand, the CRR on public sector funds is presently at 75 per cent.

But the FDC boss in the report pointed out that that underlying threats to inflation remains potent.

The Boko Haram insurgency and the anticipated disbursement of funds to finance campaign by politicians as the 2015 elections draws nearer had been identified as some factors that would heighten inflationary pressure in Nigeria.

In addition, the expected redemption of the Asset Management Corporation of Nigeria (AMCON) bonds this quarter was also expected to contribute to inflationary pressure.
Rewane also anticipated an increase in mopping of liquidity from the system by the central bank.

‘August inflation figures to weigh heavily on next MPCmeeting. FDC is projecting a jump to 8.7 per cent in August. This would represent a 6th consecutive month of increase. Trend is worrying but the rate is still within the comfort zone,” the report stated.

It added: “The primaries are in October and election motivated spending is expected to spike sharply. Oil prices (Brent) are expected to remain at the $102-$103 range through September down from $115 in June
“The revenue impact will coincide with an expansion in the fiscal deficit in November.”

However, the report showed that in August, the country’s oil revenue declined as bonny crude oil prices dropped sharply to $100 per barrel, before recovering to $102 per barrel.
It also revealed that economic activity in Lagos witnessed a sharp slowdown in August as a result of the delayed reaction to the Ebola outbreak.

“Being cosmopolitan and a travel hub, Lagos is vulnerable to international sentiment,” it added.

The Nigerian PMI (Purchasing Managers Index) measured by FBN had also slowed to 54.6 from 56.2 in July.

Inventory levels shrank as manufacturers reacted to the slowing of consumer demand. The Federation Account Allocation Committee (FAAC) funds disbursed also declined by 13.41 per cent to N654.6 billion.

Although the CBN was yet to disclose the market opening position in the money market in the past eight weeks, itestimates that the average opening position in August was about N300 billion, while total mopping up of liquidity by the CBN in August was put at approximately N250 billion.
Interest rates in the interbank market also shot up to 13 per cent per annum before dropping to 10.5 per cent per annum last month.

THISDAY