Post Views: 132 Members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), on Tuesday, ended their 268th regular meeting vot...
Members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), on Tuesday, ended their 268th regular meeting voting to keep the benchmark Monetary Policy Rate (MPR) at 13.5%.
Announcing the decision of the meeting, Godwin Emefiele, CBN Governor, said members prefer targeting single-digit inflation rate to a rate cut, following which they voted unanimously to retains Cash Reserve Ratio at 22.5%; and Liquidity Ratio, 30%. The Asymmetric corridor was left at +200 and -500 basis points around the MPR, stressing that tightening of monetary policy which could restrict the capacity of banks to create money could curtail their credit creation capabilities, just as loosening could result in excess liquidity without commensurate adjustment in aggregate output.
According to the communiqué issued at the end of the meeting, members called for intensified “efforts to encourage Nigerians in the Diaspora to use official sources for home remittances.”
Such, they continued, will complement other measures geared towards improving Nigeria’s current account balance, following which the apex bank was enjoined to consider introducing incentives such as the reduction of charges on Diaspora home remittances into Nigeria.
The committee also “noted the need to boost output growth through a sustained increase in consumer credit and mortgage loans and granting loans to our Small and Medium Enterprises companies.”
Members acknowledged ongoing efforts by the apex bank’s management to use deposit money bank benchmark loan-to-deposit ratios to redirect lending, and that as part of mitigating credit risk, the committee wants the CBN to de-risk Nigeria’s financial markets. This, they believe, is doable through “development of a reliable credit scoring system, similar to what applies in the advanced countries.”
This, they agree, will encourage Deposit Money Banks (DMBs) to safely grow their credit portfolios.
On the African Continental Free Trade Agreement (AfCFTA), the committee urged the Federal Government to put in place measures to aid the economy in realizing the benefits and full potentials of that agreement.
“In particular, it noted the need to resuscitate moribund industries in Nigeria and improve key infrastructure in order to strengthen the productive base of the economy, create job opportunities as well as boost exports.
The Committee noted the positive developments towards the creation of a common currency in the West African Zone by January 2020 and commended Government and the Central Bank for pushing forward the initiative, urging the CBN to ensure that Nigeria is properly positioned to maximise the benefits of monetary integration.
They noted that the current monetary policy efforts involving the prescription of minimum lending thresholds by the deposit money banks, which is targeted at stimulating credit growth to the real sector would increase credit delivery and accelerate investment and economic growth.
With interest rates currently trending downwards, members opted to await the full impact of these policy actions on the economy before a review of the position of monetary policy.
Still, on inflation, the committee expressed happiness that it dropped to 11.22% in June, from the previous 11.22%, helped by the decline in the food and core inflation components, a situation it linked partly to the CBN’s support to the agricultural sector and the prevailing stability in the Nigerian foreign exchange market.
Still, as part of enhancing the domestic economy, Emefiele insisted that the apex bank will soon add milk to the list of 42 items barred from accessing the official foreign exchange window, as a way of encouraging the local dairy industry.
The MPC also expressed happiness at the steady moderation in the Non-Performing Loans (NPLs) ratio of the (Nigerian) banking industry to 9.36% in June from 10.95% in May 2019. Although the current level remained above the prudential benchmark of 5% in the period under review, its continued moderation, the committee noted, “indicates the improved resilience of the banking system.
Members, therefore, emphasized the resolve to further drive down the level of Non-Performing Loans (NPLs) in the industry so as to strengthen the strategic health of banks in the country.
They also expressed concern over the sustained bear-run “in the equities segment of the capital market in spite of the sustained capital inflow to the economy, reflecting continued portfolio reallocation from equities to fixed-income securities. Consequently, the All-Share Index (ASI) declined by 9.11% to 28,566.79 index points on July 12, 2019, from 31,430.50 index points at end-December 2018. Market Capitalization, however, grew by 18.77% to N13.92tr on July 12, 2019, from N11.72 trillion at end-December 2018. This was due largely to the additional listing of new firms during the review period.