The members of the Monetary Policy Committee (MPC), in a bid to sustain the gains so far achieved in inflation reduction and forex stability in the country, on Tuesday, averse to changing the monetary policy parameters.
Of seven MPC members that attended the session, six voted to retain the Monetary Policy Rate ( MPR) at 14%, Cash Reserves Ratio ( CRR)unchanged at 22.5%, Liquidity Ratio 30% and retained the Asymmetric Corridor at +200 and -500 points around the MPR. Briefing the finance correspondents in Abuja on the outcome of the MPC decisions, the Central Bank governor, Mr. Godwin Emefiele noted that, in taking the decision, members were guided by maximum flexibility to guide the economy on path of economy growth.
With the decision yesterday, MPC has retained key parameters for sixth consecutive time, since the last quarter of 2016. Justifying the decision to hold, Emefiele said : ” The committee believes that the effect of fiscal policy action towards stimulating the economy has begun to manifest as evidence in the exit of the economy from the 15 month recession”.
“Although, seems fragile, the fragility of the growth makes it imperative to allow more time to make appropriate complementary policy decision to strengthening the recovery.
On the issue of adopting the old parameter for a while, it’s been holding constant and that what will warrant a change in position. Before the point where we started holding position we have introduced some tight monetary policy stand.
I will also say that most policy authorities in the world most time if they will change monetary policy, will not be more than once or twice in a year and what that means is that there is nothing wrong on the MPC holding position or holding a position constantly considerably over a long period of time.”
“Secondly, the committee was of the view that economic activities would become clearer between now and the Q1 of 2018 when growth is expected to have sufficiently strengthened and gained in receding inflation very obvious.
The most compelling argument for a hold was to achieve more clarity in the evolution of key macro economy indicators including budget implementation, economic recovery, exchange rate, inflation and employment generation”, explained CBN governor.
Emefile said the committee reviewed the head wind confronting the domestic economy and the uncertainty in the global environment as guide in taking the decision. ”
Consequently, six members voted to retain MPR and all other parameters at their current level while one member voted to lower the MPR to signal at ease to the current stand of tight monetary policy.
However, overall majority of the members expressed a strong commitment to policy flexibility that will allow the committee to promptly take the necessary action that will promote overall macro economic stability and engender sustainable growth”.
Meanwhile, the governor also said that the Non Performing Loan (NPL) of most banks hovers around 5 percent or relatively below or above the 5 percent Non Performing Loan ration but few are doing above the ratio.
However he assured the At the apex bank was doing everything possible to ensure banking system sustainability of all the deposit money banks.
On the economy, the Committee applauded the exit of the Nigerian economy from recession but observed that the growth remains fragile and, therefore, hopes that complementary fiscal and monetary policies would sustain the growth momentum.
The Committee further expressed satisfaction with the gradual, but consistent decline in inflation, noting, however, the substantial base effect in addition to the continuous improvement in the naira exchange rate across all segments of the foreign exchange market; and considerable improvement in foreign capital inflow.
The Committee welcomed the steady implementation of the 2017 Budget, especially, the capital component of the budget, and urged increased momentum in expenditure directed at the growth-stimulating sectors of the economy in order to reduce youth unemployment and restiveness.
However, the MPC expressed concern on the sustained pressure on food prices, noting risks posed by floods, strikes and insurgencies in various parts of the country to food production and distribution.
Emefiele said: “Regarding the tepid turnaround in economic activities in the second quarter of 2017, the Committee emphasized that the employment gains of recovery were still minimal, noting that a number of important job elastic sub-sectors were still weak and may require more fiscal support to regain traction.
We commended the Federal Government for issuing the Executive Order aimed at improving the ease of doing business in the country. It also noted the efforts of the government to create jobs in the agricultural sector with the inauguration of the Presidential Committee on job creation, targeting at least ten thousand jobs in each state of the Federation, over the next six months through a boost in agricultural support and funding.
The Committee enjoins the state governments to work with the Presidential Committee to actualise this plan without further delay.” The MPC also noted with satisfaction, the directive of the Federal Government to all states to promptly pay outstanding salary arrears, in order to boost aggregate demand.
It commended efforts to clear outstanding contractor arrears; prompt settlement of trade disputes with certain Unions of organised labour, including the Academic Staff Union of Universities (ASUU) and Health Workers; as well as the release of money to settle outstanding entitlements of the erstwhile workers of the defunct Nigeria Airways.
These efforts, the Committee reasoned would improve aggregate demand and strengthen the weak recovery. Reacting to allegations reported by some online media that the CBN was over funding the federal government, the governor refuted the claims saying, “it’s baseless and lack truth.
He said: “the issue of over funding or not, let me state categorically that the central bank of nigeria has not over funded the federal government.
The federal government on its own decided that all its funds that are in other banks both local and foreign currencies should be moved to the central bank of Nigerian into the TSA as we all know.
And I think it is important that we put it in perspective. But the assurance that I have to give is that there is no truth in the issue of over funding because whatever is overdrawn is far less than what the federal government also has in its TSA account.
So basically this has to do with the issue of lack of understanding of the operations of the central bank. But I think it is also very important for me to stress that at a time when the global economy is faced by shock that we are faced with vulnerability in the global economy, most central banks do not have a choice than to come to the aid of their government particularly when you consider what is the size of the central bank cash ratio to the GDP.
In nigeria the size of our balance sheet to the DGP is 23 per cent but I will give you the data if other banks. The Peoples bank of China the size of its balance sheet to the GDP is 45 percent, in the Euro zone is 27 percent, the Swiss central bank is 95 percent the bank of Taiwan is 98 percent, the bank of Japan is 104 percent, the Bank of England is 22 per cent and the US is 28 percent. So if Nigeria’s balance sheet size to GDP is 23 per cent, I think it calls for no cause for concern or worry for anybody to begin to come to a conclusion the way the personal statement of an MPC member has been understood.”
