Why CBN retained 14% Monetary Policy Rate -Emefiele
Governor of Central Bank of Nigeria, Mr. Godwin Emefiele
By FRANCIS EZEM The Central Bank of Nigeria CBN, has said that its decision to retain the Monetary Policy Rate at 14 per cent was informed by the fact that MPC members believe that 14 per cent was sufficiently tight to withstand inflationary pressures and that loosening it might lead to rise in consumer prices and exchange rate pressures through increased imports.
The apex bank had reconstituted the Policy Committee MPC, which include the Governor, Mr. Godwin Emefiele, Deputy Governor (Financial System Stability), Dr. Okwu Joseph Nnanna, Deputy Governor Mrs. Aisha Ahmad, , MPC Member, Professor Adeola Festus Adenikinju, and acting Director, Corporate Secretariat Mrs. Alice Karau, among others, which held its maiden meeting in Abuja on Wednesday. The Governor, who briefed newsmen on the outcome of the meeting, also announced that all other parameters were retained. He said: “The Committee noted that at 14 per cent, the policy rate was tight enough to rein-in current inflationary pressures. The Committee, therefore, reaffirmed its commitment to price stability conducive to sustainable and inclusive growth. The Committee is also of the view that loosening the rate 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 imports. Similarly, it 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.” With a foreign reserve of $46.699 billion dollars, he said that the nation’s economy has been placed on a stronger footing to accelerate the already achieve positive growth, after a period of recession. On the outlook, the CBN boss said, “Forecasts of key macroeconomic indicators give a positive outlook for the Nigerian economy in 2018. This is predicated on the quick passage and effective implementation of the 2018 budget, improved security, foreign exchange market stability as well as favourable crude oil prices. “On the downside, the Committee noted the potential impact of the 2019 election-related spending, against the weak backdrop of tax revenue efforts, herdsmen related violence and rising yields in the advanced economies. Indications in the US and the UK point to higher interest rates in the short to medium term.”
The Governor also argued that that in the face of growing spending of oil revenue, there was need for the Federal Government and the other two tiers of government to free the growth in aggregate expenditure and design means of saving funds against future oil price volatilities.
“The Committee noted that the recovery of the economy was strengthening in view of the return to growth of the services sector. As the fiscal sector continues to settle its outstanding liabilities, it reduces its domestic debt profile, thus increasing the liquidity of the banking system. “However, the MPC observed increasing monetisation of oil proceeds as evidenced in the growing FAAC (Federation Accounts Allocation Committee) distribution relative to the 2017 levels of disbursements”, Emefiele said.
The Committee therefore urged the government to initiate a strong stabilisation programme and to free growth in its aggregate expenditure and FAAC distributions in order to create savings urgently needed to stabilise the economy against future oil price related shocks.
It also made a strong case a quick passage of the 2018 Appropriation Bill by the National Assembly so as to keep the fiscal policy on track and to deliver the much needed reliefs in terms of employment and growth.
According to the Governor, the MPC was satisfied that banks’ Non-Performing Loans NPLs, which were concentrated in some sectors, were being satisfactorily addressed, adding that as government pays off its huge contractors’ debts, a large percentage of the NPLs would be addressed. The governor reiterated CBN’s commitment to delivering low-interest credit through unconventional monetary policies to aid credit flow to vulnerable and growth –enhancing sectors of the economy.
“The committee enjoins the bank to continue to support and encourage credit delivery at single-digit rates through mechanisms in the interim, while also encouraging the banking system to establish monetary frameworks to increase credit delivery to the employment generating sectors of the economy,”
While responding to a question on the level of the nation’s foreign reserve, Emefiele said that any Nigerian who was ready to establish a refinery would be supported with needed foreign exchange, noting that fuel imports had been responsible for about 25 per cent of importers’ foreign exchange demand. He said, “The Federal Government is encouraging private sector operators to invest in refineries. And what we expect is that when those private sector investments are coming in into the refinery business, if they are foreign, they will come in with their dollars. If they are local and they need to import refinery equipment we have ample of dollars to allocate to them to bring in their equipment. I can assure you that if anyone wants to go into refining business, if you have your licence, we will accord priority to you because the country is in urgent need of that”