Economy: CBN seeks increase in external reserves

The Central Bank of Nigeria (CBN) has urged the Federal Government to increase the country's external reserves.

The Governor of the apex bank, Mr Lamido Sanusi, made the call at a news briefing after the bank's Monetary Policy Committee (MPC meeting in Abuja on Tuesday.

He said the measure became necessary to safeguard the country's financial market.

Sanusi said the country's financial market was “extremely fragile'' and susceptible to external shocks due to its low external reserves.

“ The committee noted that the increase in external reserves to 45.37 billion U.S dollars as at November 15, 2013, representing an increase of 2.85 per cent above the 44.11 billion U.S dollars as at end of September 2013.

“The committee continues to express its disappointment at the low rate of reserve accretion  in spite of strong oil prices, which is a result of absence of fiscal savings,'' he said.

Sanusi said although government had moderated its spending in the second half of the year, the country's Excess Crude Account (ECA) was diminishing.

“The erosion of fiscal buffers through the depletion of the ECA has further exposed the economy to vulnerabilities while the fall in oil revenue has left capital inflows as the only source of external reserve accretion.

“The Federal Government debt has also risen phenomenally along with its deposit money banks, showing the government as a net creditor to the system.

“This underscores the urgent need for immediate implementation of the Treasury Single Account.

“The continued delay in returning government accounts to the Central Bank is adding to the huge cost of government debt due to poor cash flow management,'' he said.

The CBN governor called on the fiscal authorities to rebuild buffers in the ECA by blocking fiscal leakages in the oil sector and increasing oil revenues.

Sanusi said the MPC was retaining the Monetary Policy Rate (MPR) also known as lending rate at 12 per cent.

“Nine members voted to keep the MPR at 12 per cent, plus or minus 2 per cent, private sector Cash Reserve Ratio (CRR) at 12 per cent, Public sector CRR at 50 per cent, and liquidity ratio at 30 per cent.

“One member voted for a 0.5 per cent reduction in MPR and an increase in public sector CRR from 50 per cent to 75 per cent

“One member voted for a 0.5 per cent reduction in MPR and an increase in public sector CRR, from 50 per cent to 100 per cent.

“The committee has, therefore, decided by majority vote of nine to two to hold all rates at current level.'

For over a year, the MPC has continued to retain the 12 per cent benchmark lending rate (MPR) to ensure price and exchange rate stability.

Sanusi also said the Asset Management Corporation of Nigeria (AMCON) was expected to reduce its debt by one trillion naira by December.

He added that the transaction was not expected to have any impact on the money market because the debt would be paid for, by exchanging them for a Federal Government Treasury Bill.

“So, in essence, the only impact of the repayment is that the balance sheet of AMCON will shrink by one trillion naira,'' he said.

Sanusi said the committee had studied global monetary conditions and did not anticipate any major internal or external shocks before its next meeting in January 2014.