Post Views: 398 The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) rose from its 121st and final two-day meeting for 2018 on Thu...
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) rose from its 121st and final two-day meeting for 2018 on Thursday, with all 11 members voting to hold the benchmark Monetary Policy Rate at 14% for the umpteenth time.
The committee, according to the communiqué at the end of the meeting, signed by Godwin Emefiele, CBN Governor and chairman, members projected a 1.85% aggregate GDP for 2018, while welcoming the new minimum wage being canvassed by the labour unions, which they noted, may not spike inflation as being feared in some quarters, after all.
This, the committee argued, follows the negative output gap, which is why the proposed increase in the national minimum wage would rather “stimulate output growth due to prolonged weak aggregate demand arising from salary arrears and contractor debt.
“Consequently, its impact on the aggregate price level would be largely muted, given that the monetary aggregates have largely underperformed in fiscal 2018.In addition, the prevailing stability in the foreign exchange market would continue to moderate pressures on the domestic price level,” the communiqué added.
Members therefore called for concerted efforts “to strengthen aggregate output and demand.”
To achieve this, the CBN was enjoined “to deepen and broaden access to finance to high employment elastic sectors with particular emphasis on small and medium scale enterprises.
Members also challenged “the CBN to extend the success recorded under the Anchor Borrowers Programme to other items including fish and palm oil, etc. by introducing more stringent measures to curb access to foreign exchange for products that can be produced within Nigeria.
The committee noted improvements in the financial stability indicators such as non-performing loans, capital adequacy and liquidity ratios of the Deposit Money Banks (DMBs), which it urged the CBN to sustain through increased surveillance over the banking industry.
To achieve this, the MPC called for prompt corrective measures to further improve stability in the system, while urging on the federal government to build significant buffers to strengthen the efficacy of monetary policy.
The meeting also unanimously voted to retained the asymmetric corridor of +200/-500 basis points around the MPR; the Cash Reserve Ratio at 22.5%; and the Liquidity Ratio at 30%.
While lamenting the tepid recovery, the MPC considered the options to loosen, hold or tighten, noting “that although loosening would encourage the flow of credit to the real sector, help in reduction of the aggregate cost of credit and spur business spending and investment, thereby reinforcing the CBN’s support for output growth and economic recovery, (there is however fear) that doing so will reverse more rapidly, the gains of price and exchange rate stability achieved so far given the liquidity impact that would entail. The ensuing liquidity will exert pressure on the exchange rate in the light of increased capital flow reversals arising from monetary policy normalisation by the US Fed. This would further depress the capital market.
“As for tightening, the MPC holds the view that, while tightening will strengthen the stability of the foreign exchange market because of its dampening effect on the demand for foreign exchange, it was however convinced that this would simultaneously dampen investment growth, widen the output gap, depress aggregate demand and weaken output growth.”
The decisions to once more hold the rates after several meetings, members noted, underscores its confidence in the various policies and administrative measures deployed by the CBN which have resulted in the moderation in domestic price levels and stability in the foreign exchange rate.
A hold, the committee stressed, “is an expression of confidence in the policy regime, given the gradual improvements in both output growth and price stability. On this premise, the downside risks to growth and upside risks to inflation appear contained.”