Mr. Bismarck Rewane
Financial Derivatives Company Limited (FDC) has advised the Central Bank of Nigeria (CBN) to relax its tight monetary policy stance by 2013, so as to stimulate economic growth and lending to the real sector.
The Lagos-based financial advisory firm made this call in a report dated November 20, made available to THISDAY Wednesday.
In fact, FDC pointed out that all indicators favour an end to the restrictive monetary policy regime which has been in place since October 2011.
The Monetary Policy Committee (MPC) once more left its benchmark interest rate unchanged at 12 per cent during its last meeting for the year on Tuesday.
The decision was based on inflationary risks and uncertainties surrounding the weak global economy. Other policy instruments such as the Cash Reserve Ratio and Net Open Position were also left unchanged at 12 per cent and one per cent respectively.
Nigeria’s annual inflation rate increased by 40 basis points to 11.7 per cent in October, primarily as a result of exceptional factors such as the flooding, which resulted in an increase in food inflation to 11.1 per cent. The impact of the flooding in 12 states of the country was immediate but not as severe as expected.
According to FDC, which has Mr. Bismarck Rewane, as its Chief Executive Officer, “all pointers are in favour of an end to the CBN’s tight monetary policy stance and the need to boost growth and lending to the real sector. The current contractionary policy stance has been in play since October 2011 when the Monetary Policy Rate was raised by 275 basis points.
“The sustainability of a contractionary stance and its stifling impact on growth and the economy justifies the need for a change in policy direction. Our view is that the overdependence on interest rates as a tool for adjustment is precarious. In 2013, the CBN will have to moderate its stance to allow the interest rate decline and exchange rate depreciate.”
It also declared that the fact that leading economic indicators have remained positive for two months and that the Gross Domestic Product growth figure for the third quarter at 6.48 per cent, was lower than the previous year, “sends mixed signals on the direction of the Nigerian economy.”
FDC added: “In addition to this, the government is resolute in its pursuit for fiscal prudence as reiterated by the Federal Minister of Finance.”
Commenting on the privatisation of the power sector, it said: “Power generation and distribution will also become more efficient and consumption is expected to rise, thereby increasing the Nigerian GDP by about 10 per cent.”