For 10th time, MPC retains 14% rate to consolidate reforms

CBN Governor, Mr. Godwin E.

Pegs CRR at 22.5 per cent * Wants FG to offset N2.7trn contractors’ debts The members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) have for the 10th consecutive period, voted to retain anchor lending rate (MPR) at 14%, Cash Reserves Ratio .22.5%, Liquidity 30% across Asymmetric Corridor at +200 and -500 basis points around the Monetary Policy rate. The committee admonished the Federal Government to redeem contractors’ obligation in its purview estimated at N2.7 trillion to enable contractors liquidate their loans with the Deposit Money Banks (DMBs) to address rising None Performing Loans( NPLs).

Communicating MPC decisions to the media on Wednesday, Central Bank Governor, Mr. Godwin Emefiele, said that the decision to hold all key policies unchanged was unanimously decided by nine MPC members after exhaustive review of economic of both outlook and side risks. The Daily Times recalls that the committee increased MPR, CBN’s lending benchmark to Deposit Money Banks (DMBs) from 12 % to 14 % in July , 2016 and it has remained unchanged at 14% since then. On the outlook trajectory, Emefiele said that the members of MPC took significant note of progress recorded by economy which he said was spurred by implementation of Economic Recovery and Growth Plan ( EGRP). According to the CBN governor, the Committee was of the view that further tightening would strengthen the impact of monetary policy on inflation with complementary positive effects on capital flows and exchange rate stability. Emefiele said, “Nevertheless, it could potentially dampen the positive outlook for growth and financial stability. “However, the Committee is of the view that loosening would strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing. “This may, however, lead to a rise in consumer prices, generating exchange rate pressures on the currency in the process.

“The Committee also believes that loosening could worsen the current account balance through increased importation. “On the argument to hold, the Committee believes that key macroeconomic variables have continued to evolve in a positive direction in line with the current stance of macroeconomic policy and should be allowed more time to fully manifest. The CBN governor advised that quick passage of 2018 Budget by National Assembly will not only accelerate economy recovery pace but deepen investors confidence. He said that MPC members advised Federal Government to restrain from domestic borrowing in order to free credit lines for private sector to borrow.

He said the body expressed concern over election expenses with 2019 general elections months away. On what measures the CBN has put in place, the apex bank boss urged Federal Government to pay contractors debts. Emefiele explained that the “CBN has been very clear about this, and the size of contractor ‘debt is N2.7trillion and because these debts are unpaid to the contractors, the contractors themselves are unable to service or pay back their loans at the banks and that is why we seized the opportunity of this communique to talk about it so that these debts can be paid. The Central Bank itself stands ready to accord some form of liquidity status to some of these debts and through that mechanism we believe the NPL will recede and then the banks can now continue to play their role which is to catalyze growth and support credit delivery to the Nigerian economy. The CBN, Emefiele said, would come up with mechanisms that would enable banks have credit facilities.

He said: “From time to time, the banking supervision department that primarily supervises or that has direct oversight on the operations of banks put in place policies that will encourage credit. The Monetary Policy Committee indeed looked at the size of credit to the economy and not very satisfied that credit growth has not been as good as we thought. For instance, between November 2017 to February 2018, the volume of credit has practically platooned at N16 trillion which we consider very very low because we think, for us to push for growth, the Deposit Money Banks must in one way or the other, be encouraged to grant credit to those who need credit. “The details as to the kind of guidelines that will be unfolded by the Central Bank through the DBMs to encourage them to increase credit to the private sector so that to catalyze growth in the economy, will be made available in due course.”

However, the apex bank boss said: “it is important for us to know that the CBN will continue to adopt as stated in the communique, the unconventional monetary approach that will in line with our development finance objectives to accelerate credit to the week, to the needy, to the priority sector of the economy at a single digit interest rate with a view to ensuring that we play our own role to catalyze growth to the country. Here we are talking about not only to the SMEs, to the Agric sector particularly and also to some very important and core manufacturing sectors of the economy at single digit interest rate. We will accelerate it and I think that the president about two weeks ago, inaugurated the presidential food security council which the committee applauded and I am sure that whatever support that is needed to boost food security in Nigeria, the Central Bank will support such measures.” The new Deputy Governors, Mrs. Aisha Ahmad and Mr. Edward Lametek Adamu as well as the newly confirmed MPC members – Professor Adeola Festus Adenikinju; Dr. Robert Asogwa and Dr. Aliyu Rafindadi Sanusi were all present and that brought the number of the MPC members that participated at the first monetary meeting for this year to a total of nine. The Committee was of the view that further tightening would strengthen the impact of monetary policy on inflation with complementary positive effects on capital flows and exchange rate stability. Nevertheless, it could potentially dampen the positive outlook for growth and financial stability. But the Committee is of the view that loosening would strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing. This may, however, lead to a rise in consumer prices, generating exchange rate pressures on the currency in the process. The Committee also believes that loosening could worsen the current account balance through increased importation.

On the argument to hold, the Committee believes that key macroeconomic variables have continued to evolve in a positive direction in line with the current stance of macroeconomic policy and should be allowed more time to fully manifest. Experts react Speaking on the outcome of the MPC, the Managing Director, Bic Consultancy Services, Dr. Boniface Chizea, said the MPC has announced its decision in keeping the monetary policy indices as it is. “I thought that was on the cards.” Chizea further said that, “It is also recommended that we should formulate a regression model with the demand for credit as the endogenous variable with interest rate as one of the exogenous variables to ascertain via the coefficient of correlation the extent to which cost of money impact the demand for credit. “My take is that it is not significant except for the Corporate Treasurer. We should as a people meanwhile keep our eyes focused on the improvement we are witnessing with the economic indices while trusting and giving the benefit of the doubt to the monetary authorities that they are on top of their act to continue to promote the improvement in health of the national economy as we are currently enjoying. “As the saying goes, ‘If it is not broken why mend it.’ We have witnessed steady recovery of the economy from notional growth in GDP to persistent downward decline in the rate of inflation for about 12 months now.

And as policy makers, the likely inclination would be not to rock the boat.” But the FSDH Research had noted that the short-term outlook of the Nigerian economy favours monetary policy easing in order to stimulate credit creation and economic growth. “The easing may be in the form of an adjustment to the Monetary Policy Rate (MPR) or an adjustment to the Cash Reserve Requirement (CRR).” The FSDH Research’s analysis of the growth pattern however, showed that two sectors, Agriculture and, Mining and Quarrying were the major drivers of growth. They were the two sectors out of the six largest sectors of the Nigerian economy that recorded growth in 2017. Other leading sectors such as trade, information and communication, manufacturing, and real estate all contracted; thus, the need for monetary policy easing. The increase in the crude oil price and favourable crude oil production in Nigeria have increased capital inflows and also led to favourable trade balance. Consequently, the country’s external reserves (30-Day Moving Average) increased substantially in the last five months, growing to $46.69billion at 26 March, 2018.

 

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