By Emma Ujah, Abuja Bureau Chief
The Central Bank of Nigeria has retained the Monetary Policy Rate (MPR) at 14 per cent and equally left all policy parameters unchanged.
The Governor of the bank Mr. Godwin Emefiele announced this at the end of the Monetary Policy Committee (MPC) , in Abuja, Tuesday.
Consequently, Cash Reserve ratio (CRR) was left at 22.5 per cent; Liquidity Ratio at 30.0 per cent; and the Asymmetric corridor at +200 and -500 basis points around the MPR.
Mr. Emefiele also announced that the nation’s external reserves stood at at $32.9 billion at the close of work on September 25, 2017.
Why we retained rates – CBN
According to Mr. Amefiele, “In arriving at its decision, the Committee took note of the gains so far achieved as a result of its earlier decisions; including the stability in the foreign exchange market and the moderate reduction in inflation.
“The option was whether to hold, tighten or ease. These were subjected to extensive debate. As in previous meetings, although tightening would help rein in inflation expectations and strengthen the stability in the foreign exchange market, the Committee felt that it would further widen the income gap, depress aggregate demand and adversely affect credit delivery to the private sector.
“The Committee also noted that tightening may result in the deposit money banks re-pricing their assets and loans, thus raising the cost of borrowing and therefore heightening the already weak investment climate and non-performing loans.
“With respect to loosening, the Committee believed that although while it would make it more attractive for Nigerians to acquire assets at cheaper prices, thus increasing their net wealth, and therefore stimulate spending as confidence rises, it nevertheless, felt constrained that loosening at this time would exacerbate inflationary pressures and worsen the exchange rate and inflationary conditions. The Committee also felt that loosening will further pull the real rate deeper into negative territory as the gap between the nominal interest rate and inflation widens.
“On the argument to hold, the Committee believes that the effects of fiscal policy actions towards stimulating the economy have begun to manifest as evident in the exit of the economy from the fifteen-month recession.
“Although still fragile, the fragility of the growth makes it imperative to allow more time to make appropriate complementary policy decisions to strengthen the recovery. Secondly, the Committee was of the view that economic activity would become clearer between now and the first quarter of 2018, when growth is expected to have sufficiently strengthened and gains in receding inflation, very obvious.
“The most compelling argument for a hold was to achieve more clarity in the evolution of key macroeconomic indicators including budget implementation, economic recovery, exchange rate, inflation and employment generation.
External reserves stand at $32.9 b
He said, “External reserves position grew to US$32.9 billion at close of business on 25th September, 2017.”
$ 7 b inflows in last 7 months
According to him, “The Committee observed that the Investment and Export (I&E) window has increased liquidity and boosted confidence in the market with over US$7.0 billion inflow in the last five months.
The governor promised that the CBN “will continue to introduce policies that will improve the confidence of foreign investors in the country’s macroeconomic management regime.”
Exchange Rates convergence
Mr. Emefiele said, “The Committee noted the trend towards convergence between the rates at the bureau-de-change (BDC) and the Nigeria Autonomous Foreign Exchange (NAFEX) segments, as well as the stability of the exchange rate at the inter-bank segment of the foreign exchange market during the review period.
“Similarly, the Committee noted the success of the Investor and Exporters’ window (I &E) of the foreign exchange market and traced this not only to foreign investor confidence but also to the zeal and commitment of Nigerian exporters who have demonstrated preference for the window to the parallel market.”
Flooding , attacks on farmers may reverse gains
On risks facing the economy, the governor said that the Committee, however, noted some downside risks to the overall short- to medium-term positive outlook for the economy, including; flooding which displaced farming communities and political agitations.
He said the MPC was “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.”
The CBN boss added, “the employment gains of recovery were still minimal, and that a number of important job elastic sub-sectors were still weak and may require more fiscal support to regain traction.”
The governor dismissed reports that it was over funding the federal government, saying that there was no truth it the claims and that the CBN was one of the most transparent central banks in the world.
His word, “Let me state categorically that the CBN has not over funded the federal government.”
On the health of Deposit Money Bank, he admitted that the Non-performing Loans (NPLs) of some banks were could have gone beyond the 5 per cent limit but that largely, most of them were still around the threshold.
He assured that his team would continue to intensify its supervisory and regulatory roles to ensure that the sector remained healthy to play its catalytic roles in the economy.