BREAKING NEWS, Business
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THE Monetary Policy Committee, MPC, is optimistic that Nigeria economy will improve this year. In a communiqué issued after its first quarterly meeting held January 23 to 24, the 10-member committee said its review of the monetary economic growth showed an overall improvement globally this year.
On the domestic scene, it said that the recent increase in oil prices would be complemented “by production gains to provide the needed tailwinds to sustainable economic activity.” Thus, it welcomed the modest increase in oil prices following the last OPEC decision to cut output. While noting the effects of the output cut on oil prices, the committee cautioned that the effect could rapidly wane in the event of a supply glut from the non-OPEC members, “low level of global economic activity and weak growth.”
In the communiqué read by Godwin Emefiele, governor of Central Bank of Nigeria, CBN, the committee reviewed how the economy had performed last year, and specifically commended the positive contribution of agriculture to the GDP in the third quarter, mostly attributable to the CBN’s interventions in the sector.
“The Committee hopes that given the thrust of the 2017 budget and accompanying sectoral policies, output growth should resume in the short to medium term. The MPC, therefore, lends its voice to efforts for an early finalization of the 2017 Federal Budget by the authorities concerned, and the resolve to pursue a non-oil driven economy, as these will go a long way in stimulating aggregate demand and restoring confidence in the economy. The Committee also urged the authorities to seriously consider using the Public Private Partnership, PPP, model in its infrastructure development programme as a means of cushioning any possible shocks to budgeted revenue.
“The Committee further noted that Inflationary pressures would begin to subside as non-oil output recovers and the naira exchange rate stabilizes.
“Until then, it stressed, a rate cut would worsen the inflationary conditions and undermine the current outlook for stability in the foreign exchange market. The Committee also feels that doing so would further aggravate demand pressures while undermining existing income levels in the face of the already expansionary monetary policy and increasing inflationary pressure which will make the economy unattractive for foreign and domestic investment. Given these limitations, the Committee was reluctant to lower the policy rate on this occasion but remained committed to doing so when the conditions permit.”
In the same vein, the committee commended the commitment of the fiscal authorities to step up efforts to fill the aggregate demand gap through a speedy resolution of the domestic indebtedness of the federal government to states and local contractors. “The Committee believes that doing so will aid the effort towards economic recovery,” it said.
Besides, the committee warned that the current scarcity of foreign exchange, low fiscal activity, high energy prices and the accumulation of salary arrears, could not be directly ameliorated by monetary policy actions.
“Nonetheless, the Committee estimates that the current policy stance and other measures directed at improving food production would combine with base effect to usher-in some moderation in consumer prices in the short to medium term,” it said.
Further, the communiqué said: “It noted that the structural factors driving the sustained pressure on consumer prices, such as the high cost of power and energy, transport, production factors, as well as rising prices of imports are yet to abate. Nonetheless, the Committee estimates that the current policy stance and other measures directed at improving food production would combine with base effect to usher-in some moderation in consumer prices in the short to medium term.
The MPC also noted the “increase in the policy rate of the United States Federal Reserve Bank in December 2016 and the potential implications of that decision for international interest rates and capital flows.”
Apart from that, it noted that emerging markets and developing economies, in particular, had “continued to confront strong headwinds such as low commodity prices, rising inflation, currency instability, intractable low aggregate demand and subdued capital flows.”
The committee, while noting that the improved commodity prices would provide “modest tailwinds for resource-dependent economies in 2017,” it feared that the medium-term outlook would continue “to be muffled by stagnation and uncertainty in the prospects for global trade, subdued investment and heightened policy uncertainty, especially in some major economies.”
That notwithstanding, the International Monetary Fund, IMF, said the constraints would decline, thereby paving way for little improvements in economic growth from 3.1 percent in 2016 to 3.4 percent in 2017.
Similar of concern is the global inflation, which the committee said started moderately but steady rose on the backdrop of improvements in oil prices and currency depreciation in several emerging markets.
The development, according to the MPC the US Federal Reserve to tightening its monetary policy while other major countries such as while the Bank of Japan, BOJ, the Bank of England and the European Central Bank, all retained their accommodative policy stance at their most recent meetings.
— Jan 23, 2017 @ 17:58 GMT
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