Business
THE Monetary Policy Committee, MPC, of the Central Bank of Nigeria, CBN, has decided to retain interest rate at 14 per cent; cash reserve ration, CRR, at 22.5 per cent and liquidity ratio at 30.0 per cent.
The MPC took the decision at its meeting on Tuesday, September 26, at the Central Bank Nigeria office in Abuja.
In arriving at its decision, the committee took note of the gains so far achieved as a result of its earlier decisions including the stability in the foreign exchange market and the moderate reduction in inflation.
“The option was whether to hold, tighten or ease. These were subjected to extensive debate. As in previous meetings, although tightening would help rein in inflation expectations and strengthen the stability in the foreign exchange market, the Committee felt that it would further widen the income gap, depress aggregate demand and adversely affect credit delivery to the private sector,” a communique issued at the end of the MPC meeting and signed by Godwin Emefiele, governor of the Central bank of Nigeria, CBN.
The committee also noted that tightening may result in the deposit money banks re-pricing their assets and loans, thus raising the cost of borrowing and therefore heightening the already weak investment climate and non-performing loans.
With respect to loosening, the committee believed that while it would make it more attractive for Nigerians to acquire assets at cheaper prices, thus increasing their net wealth, and therefore stimulate spending as confidence rises, it nevertheless, felt constrained that loosening at this time would exacerbate inflationary pressures and worsen the exchange rate and inflationary conditions. It also felt that loosening will further pull the real rate deeper into negative territory as the gap between the nominal interest rate and inflation widens.
On the argument to hold, the committee believes that the effects of fiscal policy actions towards stimulating the economy have begun to manifest as evident in the exit of the economy from the 15-month recession. Although still fragile, the fragility of the growth makes it imperative to allow more time to make appropriate complementary policy decisions to strengthen the recovery.
Secondly, the MPC was of the view that economic activity would become clearer between now and the first quarter of 2018, when growth is expected to have sufficiently strengthened and gains in receding inflation, very obvious. The most compelling argument for a hold was to achieve more clarity in the evolution of key macroeconomic indicators including budget implementation, economic recovery, exchange rate, inflation and employment generation.
“In consideration of the headwinds confronting the domestic economy and the uncertainties in the global environment, the committee decided by a vote of 6 to 1 to retain the Monetary Policy Rate (MPR) at 14.0 per cent alongside all other policy parameters.
“In arriving at this HOLD decision, the MPC commits to employing maximum flexibility to guide the economy on the path to optimal growth. Consequently, 6 members voted to retain the MPR and all other parameters at their current levels, while one member voted to lower the MPR to signal an ease to the current stance of tight monetary policy.
“However, overall, majority of the members expressed a strong commitment to policy flexibility that would allow the committee to promptly take the necessary actions that would promote overall macroeconomic stability and engender sustainable growth,” he said.
– Sept 26, 2017 @ 17:57 GMT /
Tags: Abuja CBN retains Interest Rate at 14% Monetary Policy Committee Monetary Policy Rate (MPR) MPC
