•LDR Policy: Bank Loans Jumps N1.1tr Up In Four Months
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), on Tuesday, ended its two-day meeting, voting unanimously to hold the benchmark rates unchanged.
The Committee voted to retain the Monetary Policy Rate (MPR) at 13.5%; the asymmetric corridor at +200/-500 basis points around the MPR; the CRR at 22.5%; and the Liquidity Ratio at 30%.
This, according to a communiqué issued at the end of the meeting and signed by Godwin Emefiele, is to enable “better understanding of the unfolding impetus of growth before deciding on any probable variations.”
Members noted improvements in macroeconomic indicators like the nation’s GDP released by the National Bureau of Statistics; as well as the drop in Non-Performing Loans from 6.56% at end-October 2019, from 6.67%; CAR, and the Loan to Deposit Ratio (LDR). These, they noted, suggest that the current monetary policy stance is yielding results, hence the feeling that maintaining the current stance would be necessary to sustain the improvements.
Holding the rates, the committee explained, will help appraise the effects of what it termed “the heterodox policies to encourage lending by the banking industry without varying the policy rate as the downside risk to growth and caution on inflation looks stable.”
The committee called on the Federal Government to impress upon the National Pensions Commission (Pencom), the need to tweak the prudential requirements for Pension Funds Administrators to refocus their investment portfolio away from government securities. Instead, it wants PFAs to invest in other viable long-term investments in real estate, manufacturing, and agriculture; and indeed infrastructure.
It expressed strong optimism that the current policies of the CBN, “in a regime of solid fiscal and structural policy support, would yield strong dividends in closing the current negative output gap in the medium to long term, and place the economy on a sustainable and self-sufficient path of output growth.
“As a key pillar of economic diversification, the MPC drew the attention of the fiscal authorities to the immense potentials of the gas sub-sector and the urgency to encourage horizontal integration through private sector participation,” which the committee argued will improve domestic power supply and export earnings.
The MPC equally expressed pleasure at the positive outcome of actions already taken by the CBN, including the current policy on loan-to-deposit ratio, an initiative it said: “must be sustained.” As a result of the hike in LDR to 60% by the end of September, the members noted the growth in loans and advances by over N1.1tr between June and October 2019.
“It further noted that these actions have assisted in boosting credit to the agricultural and manufacturing sectors, hence, the positive outcome on the GDP.
Members also noted the moderate uptick in October 2019 headline inflation, which they say is not unexpected, given the recent land border closure and rise in demand as the festive season approaches. They expressed confidence that the medium to long-term benefits of the closure far outweighs the short-term cost.
They noted the need to drive down food prices by increasing support for local production of staples foods, like rice, fish, poultry, palm oil, and tomatoes, among others, by sustaining its policy on backward integration in the milk industry and other priority sectors of the economy.