Governor of Central Bank of Nigeria, Godwin Emefiele


The Central Bank of Nigeria CBN, has expressed worries over possible negative effects of the delay in the passage and implementation of the 2018 appropriation by the National Assembly as well as expected increased election spending on the economy, which might fuel inflationary trends. The apex bank therefore insists on retaining existing rate as part of measures to maintain a level of liquidity in the economy

Recall that the Minister of Budget and National Planning, Udo Udoma had told newsmen shortly after the weekly Federal Executive Council FEC, meeting in Abuja, Wednesday that President Muhammadu Buhari was yet to receive a clean copy the budget about one week after it was passed by the National Assembly, saying that the executive arm would also look into the document as soon as it was received.

These were part of the resolutions reached at the Monetary Policy Committee MPC of the CBN, during its second meeting for the year where it expressed concerns that the late passage and implementation of the 2018 budget coupled with anticipated increased spending occasioned by the 2019 general elections could trigger inflationary trends. These developments, the committee argued, might reverse the economic gains made so far, if pre-emptive measures were not taken to forestall that.

For the 11th consecutive time, the MPC has retained the Monetary Policy Rate MPR at 14 per cent, Cash Reserve Ratio CRR at 22.5 per cent and Liquidity Ratio LR at 30 per cent, and the asymmetric corridor at +200-500 basis points around the MPR.

The committee explained that it retained these rates considering the forecast of high liquidity injection in the second half of 2018, upward pressure of prices driven largely by substantial expansion of fiscal policy, which would arise from the late passage and implementation of the 2018 budget, outstanding balance from the 2017 budget and pre-election spending, to retain the interest rate.

The CBN governor, Godwin Emefiele, who spoke with journalists on the outcome of the MPC meeting, disclosed that eight of the nine members of the committee present at the meeting voted in favour of retaining the rate while one voted otherwise.

The governor, who admitted that the MPC had earlier pledged to lower the MPR once inflation rate trends downwards to a single digit or double-digit lower rate, also acknowledged the latest figures released by the National Bureau of Statistics NBS, the inflation rate for April was 12.48 per cent, down from 13.34 per cent recorded in March.

He however explained that the MPC decided not to lower the MPR for now as a pre-emptive measure to guard against possible inflationary pressures the late implementation of the 2018 budget and election expenses might have on the economy.

He said: “It is very true that we said until inflation drops to single digit before we take a decision on reducing the interest rate, but you will also observe, in the course of this presentation, we explained the expansion of fiscal activities that we foresee, beginning from around May or June this year.

“At this time, the fact that we are still on the 2017 budget; the 2018 budget will eventually kick in around June or July, there will be an acceleration in the rate of spending and we also expect a lot of election spending.

“These indications, expectedly, are meant to expand the economy and spur growth which I will say is commendable, but we also know that those expansionary fiscal measures will gradually lead to an inflationary increase and if that happens, it will reverse the gains we have recorded over time.

“The committee considered the forecast of high liquidity injection in the second half of 2018, upward pressure of prices driven largely by the substantial expansion of fiscal policy which will arise from the late passage of the 2018 budget, outstanding balance from the 2017 budget and the pre-election expenditure”.

“The MPC felt that further tightening would ensure the mop up of excess liquidity, mindful that despite the moderation in inflation, the current inflation rate was still above the single digit target and that the real interest rate only turned positive in the review period.

“The objective of the policy stance, therefore, would be to accelerate the reduction in the rate of inflation to single digit, to promote economic stability, boost investor confidence and promote foreign capital flows with complimentary impact on exchange rate stability.

“Conversely, the committee believes that raising the interest rate would, however, depress consumption and increase the cost of borrowing to the real sector. Moreover, such policy will make deposit money banks to reprise their assets”, Emefiele also explained