By Chinyere Aruogu
Despite the worsening recession which Nigeria’s economy is facing, the Monetary Policy Committee (MPC) on Tuesday, November 22 once more retained interest rate at 14 per cent while at the same time, not altering all other policy parameters.
The Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, said in Abuja during a news conference on the outcome of the MPC meeting, that the committee opted to retain the current policy, which is the Monetary Policy Rate (MPR) at 14 per cent, Cash Reserve Ratio (CRR) at 22.5 per cent and Liquidity Ratio (LR) at 30 per cent.
He also announced that the Asymmetric Window was also retained at +200 and -500 point around the MPR.
Emefiele said the committee took into consideration, the key risks to the global and domestic economy in a recession and concluded that the risks to the economy remained highly elevated on price and output.
According to him, available data and forecasts of key economic variables showed that the outlook for growth and inflation in the medium term continues to be challenging, confirming the views of most analysts.
Emefiele said: “Growth is expected to remain less robust, given the absence of sufficient fiscal space.
“The current tight stance of monetary policy and improved agricultural harvests are expected to contain further price increases and moderate price expectations as the trend has already revealed.”
The CBN governor noted that the committee evaluated the fragile macroeconomic conditions and the strong headwinds confronting the economy, noting that the committee’s considerations include the yet to be unveiled long term uncertainties of Brexit and expectations of significant shifts in the United States economic policy.
He maintained that the committee reaffirmed the urgency of prioritising the diversification of the economy due to the emerging gloomy protectionist outlook of the global economy.
His words: “The committee also evaluated the impact of its July and September 2016 actions on the macro-economy.
“It noted that while foreign exchange inflows into the economy had improved significantly in July and August, it declined after the September MPC meeting, leading to rising inflation and increasing negative real interest rates.
“However, outflows significantly dropped, lending credence to the propriety of the decisions of the July and September MPC meetings.”
He also said members emphasised the need for a robust and more keenly coordinated macroeconomic policy framework that would restart growth output, stimulate aggregate demand and rein in inflation expectations.
The CBN governor reiterated that the MPC was open to efforts at resuscitating planning, highlighting the progress made in developing the medium term economic recovery plan, and that the Federal Government should urgently assess the extent of its indebtedness to domestic economic agents.
Emefiele said the committee further advised the Federal Government to develop a framework for securitising the debts, to settle its outstanding domestic contractual obligations which cut across all sectors of the economy.
“These accumulated debts have slowed business activities of economic agents, most of who are indebted to the banking system, thus compromising the integrity of the financial system,” he explained.
He observed that members called for an enrichment of fiscal and other sector initiatives and interventions which he said, was geared towards resolving the growth challenges in the economy and promptly revive confidence in it.
According to the governor, the average Naira exchange rate weakened at the inter-bank segment of the foreign exchange market during the review period.
Emefiele explained: “In spite of the resumed Joint Venture payments in October, total outflows also continued to decrease, dropping significantly by 58.68 per cent from 2.4 million dollars to 1.0 million dollars during the same period.
“The committee also implored the management to continue to direct more focus at making foreign exchange available to agriculture and manufacturing sectors of the economy.
“This is by enforcing its policy directing Deposit Money Banks (DMBs) to allocate 60 per cent of the foreign exchange available to these sectors.”
He recalled that the MPC believed the security agencies should sustain checks on the activities of illegal foreign exchange operators in order to bring sanity to the segment of the market, reiterating that the extant foreign exchange regulation outlaws the trafficking of currency on the streets as some unlicensed operators currently do in Nigeria.