Despite recession, Nigeria Central Bank retains fiscal policy rates


With Nigerians grappling with the painful reality of the country’s economy in recession, the Central Bank of Nigeria (CBN) has opted to retain all fiscal policy instruments unchanged from the previous month.

The Monetary Policy Committee (MPC) of the bank said at the end of its meeting in Abuja, that the Monetary Policy Rate (MPR), which sets the lending rate for banks and businesses for a period, would remain at 14 per cent.

Equally, the committee said Cash Reserve Ratio (CRR), which establishes the specified minimum fraction of customers’ total deposits commercial banks could hold as reserves either in cash or deposits with the CBN, would be left at 22.5 per cent.

The CBN governor, Godwin Emefiele, said at the end of the meeting that the liquidity ratio was left by the MPC at 30 per cent, with the symmetric window kept at +200 and -500 basis points around the MPR.

Although the National Bureau of Statistics (NBS) said the economy had slipped into recession after a contraction to minus 2.37 per cent in the second quarter of the year, Mr. Emefiele said he remained optimistic about prospects of a quick recovery.

“Today, I am optimistic (of an early recovery), because between July and now, we have seen inflow of foreign exchange above $1 billion into the economy used by manufacturers to procure raw materials. Those who said they were closing, would begin to produce and employ people; improve productivity,” he said.

The CBN governor said the decision to retain policy instruments at previous month’s rate was to continue its tightening of the monetary policy.

On measures to reduce the spread between official and parallel market exchange rate, Mr. Emefiele frowned on the attention accorded the parallel market, which he described as a shallow market that should not control more than five per cent, maximum 10 per cent of the market.

“We cannot allow a situation where the tail should wag the dog. The dog must wag the tail. That means, it is unfair that when one wants to determine the value of the country’s currency, one would decide to use a rate in a market considered shallow as basis for determining the currency value.

“If you get to Heathrow Airport, you buy dollar at whatever rate the Travellex man sells to you. That does not in any way determine the effective inter-bank rate in the United Kingdom. If one cannot do so in the United Kingdom, why do you want to do so for Nigeria? It is unfair. It’s high time we stopped thinking in that direction,” the CBN governor said.

Mr. Emefiele said the MPC, during the meeting, again renewed its call for urgent complementary fiscal policies to resuscitate production and engineer aggregate consumption.

In particular, he said members called for diversification of the economy away from oil into agriculture, manufacturing and services as well as more efforts towards payment of salaries and arrears of public sector employees, particularly in states and local governments to stimulate aggregate consumption, as part of the overall fiscal policy.

On the supply side, he said efforts must be intensified at increased capital expenditure to redress infrastructural deficits, improve the business environment and spur growth.

In his reaction to the MPC decisions, however, Abuja-based development economist, Odilim Enwegbara, criticized the resolutions saying the situation called for sober reflection.

“That a country, deep in recession caused mostly by high cost of doing business with one of highest MPRs and CRR among peer economies, has its MPC members behaving as if the economy is in high growth mode, calls for sober reflect,” Mr. Enwegbara noted.

“What it tells us is that the 2007 CBN Act forced on the country’s President is a great fraud that should be stopped. We have come to the point in our monetary policy stance when the Act is now amended urgently.

“The goal of the amendment is for the Commander-in-Chief of Nigeria’s economy, who was elected by millions of Nigerians to better their lives and improve the overall economy, should be the one to have the final say about the country’s MPR, CRR and FOREX policy.

“Mr President should call members of MPC to a closed-door meeting and demand their immediate resignation,” Mr. Enwegbara said.

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