L – R: The Executive Director, Market Operations and Technology, The Nigerian Stock Exchange (NSE), Mr. Ade Bajomo; Deputy British High Commissioner to Nigeria, Mr. Martin Uden; Chief Executive Officer, NSE, Mr. Oscar Onyema and Economist, Middle East, Africa & Energy Team, Economics Unit , Foreign & Commonwealth Office, London, Mr. Simon Murphy on a courtesy visit to The NSE yesterrday….
Nigeria's central bank maintained is Monetary Policy Rate at 13.00 per cent, as widely expected, but noted that "monetary policy is gradually approaching the limits of tightening and would, therefore, require complementary fiscal and structural policies" to protect reserves that safeguard the value of the naira currency and the overall stability of the banking system.
The Central Bank of Nigeria (CBN), which raised its rate by 100 basis points in November 2014, also harmonized its reserve requirements on public and private sector deposits, which it said had "constrained" the policy space and could inspire moral hazard by private market participants.
As additional tightening measures were not considered appropriate now, CBN imposed a 31 percent requirement on private sector deposits, up from the current 20 per cent, and 31 per cent on private sector funds, sharply below the 75 per cent that was imposed in January last year in an attempt to support the naira's exchange rate.
The naira fell sharply from November last year until March when it started to stabilize after the central bank introduced a series of measures that would limit the purchase of dollars in the interbank market in an effort to prevent speculative trading and save declining foreign reserves.
The naira has also been supported by rebounding portfolio inflows after investors' nerves were soothed following a peaceful outcome to elections in late March. The incoming government of Muhammad Buhari takes office on May 29 after President Goodluck Jonathan lost the election.
Africa's largest oil producer has been hit hard by last year's fall in oil prices and its Gross Domestic Product shrank by 11.57 per cent in the first quarter from the fourth quarter for annual growth of only 3.96 per cent compared with a rate of 5.94 per cent in the fourth quarter and 6.21 per cent in the first quarter of 2014.
The CBN "expressed concern about the weakening economic momentum," but noted that other oil exporters are suffering from the same conditions, suggesting the need to accelerate initiatives to diversify the country's economy.
CBN expects growth to decline to 5.54 per cent this year from 6.22 per cent in 2014.
Nigeria's gross official reserves rose to $30.05 billion as of May 15 from $29.34 billion end-March.
Nigeria's inflation rate rose to 8.7 per cent in April from 8.5 per cent in March, the fifth consecutive month of accelerating inflation, and the CBN said it was "concerned about the creeping headline inflation," but noted the rise was largely due to transient factors, such as high demand in the period around the elections, along with the pass-through effects of the naiba's exchange rate.
Commenting on the risks to the global economy, CBN noted the possible tightness in global financial markets and the diverging stance of monetary policy in advanced economies, "which portend grave consequences for capital flows, exchange rate stability and inflation expectations."
Turning the United Kingdom, CBN said that with UK inflation turning negative in April - the first time on record - it said "the size of its asset purchase program of 385 billion pounds may be revised by the Treasury."
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