The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) may be under severe pressure over some economic decisions it will take today.
Consequently, pressures from different financial stakeholders in the country have continued to mount on the MPC to reduce the Monetary Policy Rate (MPR) from its current 14 per cent.
The MPR, which serves as the benchmark interest rate in the country’s financial industry has been retained for seven consecutive MPC meetings at 14 per cent, but financial experts have expressed divergence opinions over the likely outcome of the MPC meetings, which holds today and Tuesday in Abuja.
The MPC committee had retained the MPR at its last meeting in July at 14 per cent, Cash Reserve Ratios (CRR) for commercial banks at 22.5 per cent; and the Liquidity Ratio (LR) at 30 per cent, Asymmetry corridor at +200 and -500 basis point.
But financial analysts and manufacturers believed that the latest economic report by the National Bureau of Statistic (NBS), which showed that Nigeria’s Gross Domestic Product (GDP) growth rate for the second quarter (Q2) 2017 grew by 0.55 per cent (year-on-year), may forced the committee to leave rate unchanged, because of the insignificance in the economic growth, so as not to obstruct the retraction in the economic growth.
The Special Adviser on Economic matters to President Muhammadu Buhari, Dr. Adeyemi Dipeolu, while commenting on the Africa’s largest economy’s exit from its worst recession in 29 years, agreed that the GDP growth remained fragile. Speaking on the likely outcome of the meeting, Financial analyst, Afrinvest West Africa limited, Mr. Robert Omotunde, told our correspondent that the economy is very fragile; MPC is more likely to maintain status quo with regards to monetary aggregate rates, because the economy is just beginning to grow against after contraction in five consecutive quarters. He said,
“It will be too soon to reduce interest rate. Moreso, the CBN is pursuing tightening monetary objectives.” Also, Prof Leo Ukpong, Dean, School of Business, University of Uyo and a financial economist, noted that though Nigerian core inflation rate, which accelerated while the economy was contracting, which was an unusual trend, since the country has returned to growth, it was expected that the CBN would lower its interest rate benchmark.
“I believe the committee should drop interest rate, even if it just 50 basis points. If you look at it historically, they would probably retain the rates, but that would be a bad policy,” he argued. But with the business environment becoming more unfavourable in 2017 for manufacturing companies, according to the result of 2017 Manufacturing Sector Survey conducted by NOIPolls and Centre for the Study of Economies of Africa (CSEA), which was released last week, the clamour for the scaling down of interest rate has been on the rise.
Private sector operators said it was imperative for the committee to tinker with 14 per cent interest rate and other monetary aggregates as a way of stimulating economic recovery, following the country’s exit from recession in the second quarter of 2017.
The result of the 2017 manufacturing Sector Survey indicated that 85 per cent of the 496 manufacturing companies interviewed between February and May 2017 across the six geo-political zones, were operating below 75 per cent of their installed capacities.
According to the survey, 74 per cent of the manufacturing companies said the business environment has been unsupportive in 2017, against 60 per cent who made the same assertion in the corresponding period of 2016.
Larger percentage of the interviewees (55 per cent) believed unfavourable foreign exchange rate; and bad road made the operating environment harsher for them, while 47 per cent stated that it was unavailability of fuel that worsened the business climate during this period.
Research and Advocacy, Lagos Chamber of Commerce and industry (LCCI), Dr. Vincent Nwani, said that the loan portfolios of many commercial lenders declined in H1 2017, because many manufacturers and SMEs shied away from obtaining credits due to lack of access and high cost of funds in the country.
“We hope the MPC will use the National Bureau of Statistics (NBS) report which says we are out of recession; and we can only grow a little as a baseline and factor it into their decision.
And the only way is to moderate monetary aggregates not only Monetary Policy Rate (MPR). “We believe it is time for the private sector to return to the banking hall to collect loans, that is the only way we will have confidence that the monetary authorities are not working at variance with other stakeholders to move the country towards economic recovery, ” he added.
In the same vein, Dr. Adi Bongo, Faculty member, Lagos Business School, said that the country’s inflationary trend was the backlash of government policies, not due to increased money supply.
He asserted that the government has left interest rate very high to attract investors to subscribe to its treasury bills and bonds, which it has been issuing continuously to enable it fund capital projects since price of crude oil, which is the major source of government revenue, has been down, though it has appreciated to $55.70 last Friday.
The government has been issuing Treasury bills and bonds at the rate of between 10-18 per cent, which has encouraged commercial lenders to reduce their loan risk appetite and embrace the fixed income market, thereby denying the real sector credits.
“Companies margin is about 10 per cent; there was no way they would be able to borrow as high as 25 per cent. They can’t cover their costs let alone make profit. This is the real challenge confronting the real sector.
This is why Non-Performing Loans have been increasing. “Maybe, the CBN has to find a way of tampering with rate, but right now I don’t see them doing anything, especially now the NBS has said that the economy has turnaround by 0.55 per cent growth.
They may likely continue in the same rationale. So, I don’t see it changing rates,” the economist opined. Analyst, Futureview Financial Services Limited, Mr. Andrew Esene, noted that the MPC would use the meeting to further appraise the Nigerian Autonomous Foreign Exchange window, which was introduced in April and review the Q2 Gross Domestic Product (GDP) report recently released by the NBS.
“Call for the reduction of MPR won’t be visible at this time, because of the threat increase liquidity may pose on the naira,” he said. Meanwhile, private sector credit in Nigeria increased 0.88 per cent to N22.17trillion in July from N21.98 trillion in June 2017, having reached an all-time high of N23.07trn in October of 2016 and a record low of NGN440.87 billion in January of 2000.
Foreign Trade in Goods Statistics for Q2 2017 showed that the country’s total imports’ value was 13.51 per cent higher to N2.6trn in Q2 2017 than Q1 2017 and 9.97 per cent higher than Q2 2016. But Nigeria’s total export value increased 3.2 per cent to N3.10trn in Q2, 2017 compared Q1 2017 and 73.48 per cent better than Q1 2016.
Nigerians imported 16.01 per cent more agricultural goods in Q2 2017 than in Q1 2017; and 61.02 per cent higher than Q 2 2016. The country’s raw material exports’ value, however, increased by 31.8 per cent in Q2 2017 against the level in Q1 2017.
