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The Central Bank of Nigeria (CBN) yesterday announced
the resumption of active open market operations for the purpose of
targeted liquidity management in the country. This was part of the
resolutions announced in Abuja by the apex bank’s governor, Lamido
Sanusi, at the end of the monthly Monetary Policy Committee (MPC)
meeting to review the country’s domestic economic conditions for the
first eight months of the year and the challenges facing the economy.

Other high points at the meeting included the
decision to increase the monetary policy rate (MPR) by 25 basis points,
from 6.0 percent to 6.25 percent, and adjustment of the asymmetric
corridor to 200 basis points above, and 300 basis points below the MPR,
for the standing lending and deposit facilities respectively. It also
agreed to raise forthwith interest payable on standing deposits with
CBN overnight by 200 basis points.

Mr. Sanusi, expressed the committee’s satisfaction
with the progress so far with the ongoing reforms in the financial
sector, and noted the inflationary pressures likely to be exerted on
the economy with the upsurge of government spending in an election
year, as well as the liquidity implication of the purchase of
non-performing loans by Asset Management Corporation of Nigeria
(AMCON). He, however, assured that the CBN is considering a policy
action to moderate the impact.

The committee, which also endorsed the CBN’s liaison
with the Pension Commission (PENCOM) to get part of the accumulated
pension fund to finance power sector projects on a long term basis,
commended government’s decision to resume the power sector reforms and
pointed out that this would impact positively on the core structure of
the country’s economy.

“We are trying to work out an arrangement that would
make the PENCOM fund to be available for power projects at single
digits interest rates. Between the PENCOM and the CBN, we should be
putting in about N500 to N600 billion in power sector development. That
potentially can create about 6,000 mega watts (MW) of electricity.

“This arrangement would help in shielding the power
sector from the vagaries of volatility in the international capital
market and the exchange and interest rates risks,” Mr. Sanusi said.

“We are sensitive at driving inflation. We do not
think at this point that it is something to panic about. However, we
recognise that with increase spending with AMCON, increase in salaries,
participation in deregulation, government is likely to have significant
equity injection towards rear end, which might further fuel inflation
in double digits,” he added.

Stock leadership crisis

On the operations at the capital market, the
committee expressed conviction that the early resolution of the
leadership impasse at the Nigerian Stock Exchange (NSE), as well as the
effective take off of AMCON would facilitate the return of the stock
market to the path of recovery.

The foreign exchange market, the committee noted,
remained relatively stable during the period, with total inflow in July
put at $2.25 billion, an increase of 9.22 percent over the $2.60
billion in the preceding month, out of which crude oil and gas revenue
was $2.16 billion, or 93.97 percent.

On the other hand, total outflows of payments for the
same period amounted to $4.03 billion, an increase of 3.78 percent,
from $3.88 billion for the previous month, while net outflow was put at
$1.78 billion. Total inflows of foreign exchange to the market between
January and August was $52 billion.

A breakdown of the total figures showed CBN funds
accounting for $14 billion, or 27 percent, with the balance coming from
autonomous foreign exchange sources, including oil companies,
international institutions, and other agencies, while gross external
reserve stood at $36.636 billion as at September 13, representing a
decrease of $0.5 billion, or 1.3 percent, when compared with the
$37.167 billion as at end July.

The committee described the current external reserve
level as still adequate and expected to remain robust, considering the
favourable outlook of oil prices at the international oil market,
pointing out that “there is no compelling reason to alter the exchange
rate regime, as stability will remain priority.”

On the AMCON board, Mr. Sanusi said a list of nominees submitted, in
consultation with the minister of finance, Segun Aganga, to the
presidency, has since been approved and passed on to the National
Assembly for screening and final confirmation. He assured that as soon
as the law makers resume from their vacation, the approved appointees
would be made public.