The reconstituted Monetary Policy Committee, MPC, of the Central Bank of Nigeria, CBN, ended its maiden meeting on Wednesday with all nine members in attendance agreeing to keep the Monetary Policy Rate, MPR, at 14 per cent, the Cash Reserve Ratio, CRR, at 22.5 per cent, Liquidity Ratio, LR, at 30.0 per cent, and the asymmetric corridor at +200 and -500 basis points around the MPR.
The meeting being the first for the year basically retained key monetary policy rates as they had been with the CBN governor, Mr. Godwin Emefiele, explaining that in reaching this decision, the potential policy options in terms of the balance of risks were appraised by members.
The committee also observed the increasing monetisation of oil proceeds as evident in the recent growing Federation Account allocations to the three tiers of government, relative to disbursements in 2017, and frowned at what it described as “growing FAAC distribution” as oil revenue rise without a robust savings programme to wade-off future shocks from falling oil prices.
The MPC called on the fiscal authorities to initiate strong stabilisation programmes and freeze the growth in its aggregate expenditure and FAAC distributions in order to create savings. This, it posited, was needed to stabilise the economy against future oil price-related shocks.
Briefing journalists at the end of the MPC meeting in Abuja Wednesday, Emefiele said, “The committee also took note of the gains made so far as a result of its earlier decisions, including the stability of the foreign exchange market, the moderation in inflation rate as well as the restoration of economic growth.
“The committee was, however, concerned about the fiscal distortions associated with absence of buoyancy between GDP growth and tax revenue, and urged the fiscal authorities to deploy appropriate corrective measures to address this phenomenon.
“The committee was of the view that further tightening would strengthen the impact of monetary policy on inflation with complementary positive effects on capital flows and exchange rate stability. Nevertheless, it could potentially dampen the positive outlook for growth and financial stability,” Emefiele said.
However the committee, he added, was of the view that loosening would strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing. This may, however, lead to a rise in consumer prices, generating exchange rate pressures on the currency in the process.
“The committee also believes that loosening could worsen the current account balance through increased importation. On the argument to hold, the committee believes that key macroeconomic variables have continued to evolve in a positive direction in line with the current stance of macroeconomic policy and should be allowed more time to fully manifest.
“In consideration of the foregoing, the committee decided unanimously by a vote of all members present to retain the Monetary Policy Rate, MPR, at 14.0 per cent alongside all other policy parameters,” he said.
After its last meeting in November 2017, the MPC could not form a quorum to sit in January 2018 due to the refusal by the Senate to confirm new nominees of President Muhammadu Buhari after some members of the committee had completed their tenures and retired.
The MPC has retained the MPR at 14 per cent since July 2016 when it was increased by 200 basis points from 12 to 14 per cent, while also retaining the CRR at 22.50 per cent and LR at 30 per cent as well as the asymmetric window at +200 and -500 points around the MPR.
Emefiele disclosed that the committee noted the continuous positive outlook of the economy based on the manufacturing and non-manufacturing purchasing managers’ index, PMI, which stood at 56.7 and 57.2 index points respectively in March, indicating expansions for the 12th and 11th consecutive months.
According to him, the committee was of the view that the effective implementation of the Economic Recovery and Growth Plan, ERGP, by the federal government and quick passage of the 2018 budget will continue to enhance aggregate demand and confidence in the Nigerian economy.
The committee, he added, also noted with satisfaction the gradual return to macroeconomic stability as reflected in the third consecutive quarterly growth in real GDP in the fourth quarter of 2017.
“It also noted the continued moderation in all measures of inflation as well as sustained stability in the naira exchange rate and urged the central bank to sustain the stability to avoid a mission drift.
“In particular, the committee welcomed the narrowing of the exchange rate premium between the BDC, bureau de change, segment and the Investors’ and Exporters’, I&E, window of the foreign exchange market.
“Overall, the committee noted that the recovery of the economy was strengthening, in view of the return to growth of the services sector. As the fiscal sector continues to settle its outstanding liabilities, it reduces its domestic debt profile, thus increasing the liquidity of the banking system,” he stated.
The CBN governor said notwithstanding the general improvement in macroeconomic conditions, the committee noted the rather slow pace of moderation in food inflation. It also took note of the potential risk of a pass-through from rising global inflation to domestic prices, he added.
“The launch of the Food Security Council by the federal government to improve food sustainability is a step in the right direction.
“Members, however, expressed confidence that the tight stance of monetary policy would continue to complement other policies of government in addressing some of the structural issues underlying the stickiness of food prices.
“The committee noted that at 14 per cent, the policy rate was tight enough to rein in current inflationary pressures. The committee, therefore, reaffirmed its commitment to price stability conducive to sustainable and inclusive growth,” Emefiele said.
On non-performing loans, NPLs, in the banking sector, the MPC called on the government to pay off its huge contractor debts, adding that this would address a sizeable portion of the NPLs.