Why CBN is retaining monetary policy rates despite economic crisis – Emefiele

Godwin Emefiele, CBN Governor

The Central Bank of Nigeria, CBN, on Tuesday opted to leave all monetary policy rates unchanged, despite continued decline in the economy.

At the end of the Monetary Policy Committee meeting in Abuja, the monetary policy rate, which sets the lending rate for banks and businesses, was retained at 14 per cent, while Cash Reserve Ratio (CRR) was left at 22.5 per cent and liquidity ratio at 30 per cent.

The CRR sets the specified minimum fraction of customers’ total deposits commercial banks can hold as reserves either in cash or deposits with the Central Bank.

At the post-MPC meeting media briefing in his office, the CBN governor, Godwin Emefiele, said the liquidity ratio would be kept within the symmetric window of +200 and -500 basis points around the MPR.

Mr. Emefiele explained that the decision to retain the rates was to avoid worsening the inflationary conditions and undermine the current economic outlook, for stability in the foreign exchange market.

Besides, he said the MPC also felt tampering with the rates would further aggravate demand pressures and undermine existing income levels in the country, in view of the headwinds in the domestic economy and the uncertainties in the global environment.

“In the face of the already expansionary monetary policy and increasing inflationary pressure, which will make the economy unattractive for foreign and domestic investment, the Committee was reluctant to lower the policy rate on this occasion,” Mr. Emefiele said.

With a slight improvement in commodity prices in recent times, the CBN governor said, despite scarcity of foreign exchange, low fiscal activity, high energy prices and the accumulation of salary arrears, it remained optimistic this would support the country’s economic growth.

Although the MPC commended government’s commitment to fill aggregate demand gap, Mr. Emefiele said a speedy resolution of the domestic indebtedness to states and local would boost effort towards economic recovery.

On external developments fueling uncertainties, the CBN governor identified the rising wave of populist and anti-globalization sentiments, divergent monetary policy stance of the advanced central banks and disorderly commodity price movements.

He said based on available data and forecast of key economic variables by the National Bureau of Statistics, the medium term outlook of the economy revealed a more resilient economy in 2017, with growth expected to turn positive in the fiscal year.

“In addition, the agricultural sector is expected to play a bigger role in driving growth, given the expansion of the Anchor Borrower Programme, as well as other developmental initiatives of the (federal) government,” he said.

The governor said the MPC had identified factors capable of holding adverse consequences for other countries, including recovery of the Nigerian economy in 2017, to include the cancellation and re-evaluation of trade agreements and the possibility of rapid monetary policy normalization by the new United States government.

Other factors, the committee said, included the uncertainties in the implementation of BREXIT and the retreat from globalization and free trade in the western economies.

With these structural policy shifts in the global economy, the Committee stressed the need for Nigerians to be more inward looking and ensure efforts towards economic diversification to support the domestic economy and improve life for the Nigerian people.

On the policy to set aside 60 per cent of the total foreign exchange available to the deposit money banks, the CBN government said this was necessary to support the manufacturing sector and the power sector operators, considered some of the sectors capable of creating jobs.

He said the disbursement of the N50 billion approved by the bank to finance the revamp of some of the moribund textile industries in the country had commenced, to ensure that the industry was restored as the second highest employer of labour after the public sector.

“In today’s world where we are all confronted with the issues of bilateralism and trade practices, when people are talking about jobs for their people, I think it is about time we all started to look at some of those sectors that used to create jobs for this country, so that we begin to see more of our young graduates begin to go to factories to work, rather than being in the streets as unemployed persons,” Mr. Emefiele said.

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