BREAKING NEWS, Business
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The Monetary Policy Committee of the Central Bank of Nigeria after a two-day summit proposes some far-reaching measures aim at revamping the economy to meet current reality
THE Monetary Policy Committee of the Central Bank of Nigeria, which met on March 21 and 22, blamed the weakening macroeconomic environment, particularly in foreign exchange shortages, slowing GDP growth rate and rising inflation for the Nigeria economic problems.
The committee also noted that Nigeria was affected by the slow growth in the global economy, occasioned by a lot of factors, including pressure on financial market and insecurity.
According to a statement delivered by Godwin Emefiele, governor of the CBN, overall economic growth slowed significantly in 2015 because of the “uncertainty around fiscal policy, adverse external environment, security challenges in some parts of the country affecting production and distribution of agricultural produce, low electricity supply, fuel shortages, and sluggish growth in credit to the private sector.” All these, Emefiele said, had continued in the first quarter of 2016.
He said: “On the monetary front, contrary to the notion of liquidity overhang in the financial system, the wider economy appears starved of the needed liquidity to spur growth and employment. Recent performance of the monetary aggregates lends credence to this fact. With the exception of credit to government, growth in all the monetary aggregates remained largely below their indicative benchmarks, yet; headline inflation spiked to 11.38 per cent in February 2016, substantially breaching the policy reference band of 6 – 9 per cent.”
The CBN boss explained that the increase in inflation was not driven so much by liquidity, but by structural factors such as fuel scarcity, increased electricity tariff, persistent insecurity, exchange rate and seasonality of agricultural produce. Besides, he said the conflicting signals from slowing growth and rising inflation had presented a difficult policy challenge. He said the committee was mindful of the limitations of monetary policy in influencing the drivers of the current price spiral, the committee emphasized on the need to urgently address the key sources of the pressures. “In this regard, the committee reaffirmed its commitment to closely monitor the development while working with relevant authorities to address the structural bottlenecks,” Emefiele said.
Nevertheless, he said the committee noted that the excess liquidity in the banking system was also “contributing to the current pressure in the foreign exchange market with a strong pass-through to consumer prices.” That notwithstanding, he said: “The Committee further noted that previous efforts to reflate the economy in order to spur growth did not elicit the required response from DMBs, hence; the surfeit of liquidity in the interbank market. Obviously, the attendant low rates at that market have not transmitted to the term structure of interest rates.” Hence, in its efforts to give low interest rates to support growth and employment, the committee urged the CBN to explore innovative ways of ensuring the unhindered flow of credit at low cost to key growth sectors even as monetary policy so as to address the liquidity surfeit in the banking system as well as the pressure on exchange rate and consumer prices.
The Committee further expressed optimism that fiscal and other structural policies would soon be deployed to strengthen the overall response of macroeconomic policy to the shocks.
The CBN boss said the committee was also concerned that with headline inflation at 11.38 percent, which was caused by the policy rate in real terms. “This development has the potential of keeping both foreign and domestic investments on hold. As part of measures to address the supply constraint in the foreign exchange market, yields on domestic instruments have to be competitive to attract the much needed foreign inflows.
“On the administrative side, this will have to be complemented by a comprehensive reform of the foreign exchange market which is currently being undertaken. For the avoidance of doubt, the Bank would continue to allow domiciliary account holders unfettered access to funds in their accounts.
“The Committee also enjoined the relevant agencies to speed up passage of the 2016 Budget in order to halt the depressing effect of the uncertainty that engulfs the waiting period, hoping that the implementation of the budget would go a long way in boosting business confidence, and reinvigorating the financial markets. In the circumstance, the Committee urged the Bank to continue to upscale its surveillance of the financial system with the aim of promptly detecting and managing vulnerabilities to ensure sustained stability,” he said.
Above all, Emefiele assured that the committee remains committed to price stability across the range of consumer prices, exchange rate and interest rate as fundamental measure to reviving economic growth and employment generation.
He also promised that CBN would continue to leverage its development finance policy to support critical sectors of the economy.
The committee, according to him, voted to tighten the stance of monetary policy; raise the MPR by 100 basis points from 11.00 per cent to 12.00 per cent; raise the CRR by 250 basis points from 20.00 to 22.50 per cent; retain Liquidity Ratio at 30.00 percent and narrow the asymmetric corridor from +200 and -700 basis points to +200 and -500 basis points.
— Mar 22, 2016 @ 18:40 GMT
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