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The Central Bank of Nigeria (CBN) has indicated that the anticipated tapering of the United States' quantitative easing (QE) programme in 2014 may lead to further tightening of monetary policy.
The Deputy Governor, Financial System Stability, CBN, Dr. Kingsley Chiedu Moghalu, dropped this hint at the CBO Capital Partners Limited third annual investors’ conference in Lagos at the weekend, where he delivered a keynote address on the outlook of the Nigerian economy in 2014.
According to Moghalu, the planned easing of the Federal Reserve’s QE programme which he said would lead to a rise in interest rate also in Europe, would lead to “some pressure on the exchange rate and stock prices due to the impact of capital flows,” in Nigeria
Moghalu said the central bank had expressed concern over the depletion of the Excess Crude Account (ECA), explaining that, the decline was one of the reasons “why we do not think we have come to the end of the monetary tightening cycle.”
According to him, given that 2014 is an election year, government spending is expected to rise due to the financing of election activities. This, he argued, may worsen the liquidity condition in the financial system and create inflationary pressure.
He, however, said: “In about five years from now, we should have shifted our economy to become largely industrial manufacturing base. Within the next five to 10 years, we must do that, otherwise, the future could be difficult for us.
“The outlook for the financial sector in 2014 is bright. With the commitment of the CBN to macro economy and financial system stability, Nigeria is likely to evolve as a preferred destination of choice for investment in 2014.
“It is very interesting to say that the perception is that Nigeria is the place to be in this continent. Whatever may be the temporary problem this economy is going through, everyone in the world looks at Nigeria as Africa’s future.”
But, he noted that such perception imposes more responsibility on policy makers in the country to drive economic activities towards the development of infrastructure and other things that would drive sustainable growth.
“It is not enough to have high gross domestic product (GDP) numbers. I have always argued that it is time to have an economy where growth is much more inclusive. But you can’t have economic transformation without economic growth. That is the fact.
“As we move to 2014, I believe that the power sector reforms would be a critical factor. Another critical factor that we are beginning to see is the licensing of private refineries.
“I think that the combination of events would form a fundamental economic shift in this country over the next five years. I can see the direction very clear and I believe that with sustained efforts, this country would get to a point of irreversibility of economic transformation,” he declared.