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Cbank raises banks' cash reserve requirement to 12 pct
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Signs for Nigeria's economy are ominous - cbank
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Cbank says Nigeria unprepared for oil price shock
By Camillus Eboh and Joe Brock
ABUJA,
July 24 (Reuters) - Nigeria's central bank (CBN) left its benchmark interest
rate on hold at 12 percent on Tuesday, as expected, but took measures to
tighten liquidity to support the weakening local naira currency.
The
CBN's Monetary Policy Committee (MPC) raised banks' cash reserve requirement to
12 percent from 8 percent and reduced net open foreign exchange positions to
one percent from three percent to support the naira.
"This
is huge and a clear statement of resolve on the part of the authorities on
their determination to support the naira despite considerable external
threats," said Razia Khan, head of Africa research at Standard Chartered.
"We
expect the naira to strengthen on the interbank market on the back of
this," Khan added.
The
naira has been hit by a fall in the price of oil, Nigeria's main export, and
global risk aversion and has weakened by almost 3 percent against the dollar
since April.
The
naira closed at 160.7 against the U.S. dollar on Tuesday, outside the central
bank's 150-160 target trading band.
Currency
weakness is aggravating inflation as Nigeria imports 80 percent of what it
consumes.
Consumer
inflation rose to 12.9 percent year-on-year in June, up from 12.7 percent in
May. The CBN expects it to peak around 14 percent later this year.
Central
Bank Governor Lamido Sanusi said on Tuesday there were serious risks to growth
in Africa's second largest economy due to weaker global growth, lower oil
output and the government's failure to push through reforms and projects.
"OMINOUS"
SIGNS
"The
ominous signs for the domestic economy are evident," Sanusi said while
delivering the MPC decisions in Abuja.
"The
committee observed that since its meeting in May growth prospects have been
threatened by developments (globally) as well as the very slow progress in
structural reforms and poor implementation of the capital budget in 2012."
Some
members of Nigeria's parliament said last week President Goodluck Jonathan
could be impeached if his government doesn't implement all the projects in the
2012 budget by the time lawmakers return from their recess in September.
Sanusi
also said Nigeria was unprepared for a potential oil price slump because
government was spending the country's savings, which are stored in the excess
crude account (ECA).
The
ECA held $20 billion prior to the 2007 global economic crisis, helping cushion
Nigeria against slowing growth but despite record high oil prices in recent
years the ECA now contains around $6 billion. This is not enough to support the
economy from falling oil prices, Sanusi said.
He
also highlighted the risks posed to Nigeria's economy from the worsening
security environment.
Oil
theft has increased sharply this year in the southern oil-producing Niger Delta
and could cost the government around $5 billion annually, oil companies have
said. Meanwhile, an Islamist sect Boko Haram's insurgency in the north is
hampering development of agriculture, which makes up 40 percent of GDP.
Nigeria's
economy grew 6.17 percent in the first quarter this year, down from 7.68
percent in the fourth quarter last year. The economy is projected to grow at
6.5 percent on average this year, down from 7.4 percent in 2011.
The
CBN has kept rates on hold since November, after six successive hikes last
year, including a 275 basis point rise in October to 12 percent, to ward off
speculation on the naira. The naira fell 4.5 percent against the dollar last
year.
Eleven
analysts polled by Reuters last week had expect the central bank's MPC to keep
its benchmark rate unchanged.
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