• Seeks Faithful Implementation Of 2017 Capital Budget
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), on Tuesday ended its second meeting of the year with a resolve to leave the benchmark rates, on changed as projected by analysts.
According to the communiqué at the end of the meeting signed by Godwin Emefiele, CBN Governor, the eight members in attendance unanimously voted to retain the Monetary Policy Rate (MPR) at 14% alongside all other policy parameters.
Specifically, the committee also voted to retain the Cash Reserve Ratio (CRR) at 22.5%; Liquidity Ratio at 30%; and the Asymmetric corridor at +200 and -500 basis points around the MPR.
While expressing pleasure at the gradual retreat in the country’s inflation rate, the committee members were however were “of the view that whereas the downward trend in inflation in April 2017 is a welcomed development; the rate was still significantly above the policy reference band,” the communiqué noted.
“Nevertheless, against the backdrop of the rather unclear outlook around key economic activities (food production especially) and some optimism about current deceleration in inflation as well as relative stability in the naira exchange rate, the MPC was reluctant to alter the current policy configuration in any fundamental manner.
“This is intended to allow the existing policies to fully achieve their intended goals and objectives. On the other hand, the Committee noted that the cost of capital in the economy remains high and not helpful to growth.
“The MPC was however, concerned that loosening would exacerbate inflationary pressures and worsen the gains so far achieved in the exchange rate of the naira. It was also convinced that loosening would further increase the negative real interest rate as the gap between the nominal interest rate and inflation widens.”
While noting the relative stability in the Naira exchange rate across all segments of the foreign exchange market and the improved prospects of foreign investment inflow, the committee also welcomed the passage of the 2017 Budget, calling on the relevant authorities to ensure its judicious implementation, especially, the capital budget in line with the Economic Recovery and Growth Plan.
The communiqué also noted the associated risks to banking system liquidity of the envisaged fiscal injections during the remainder of the year, following which “the Committee contemplated the prospects of further tightening of monetary policy, should the need arise.
“The MPC however, noted that further tightening would widen the income gap, depress aggregate consumption and adversely affect credit to the real sector of the economy.”
On the financial stability outlook, the Committee said in spite of the banking sector’s resilience, the weak macroeconomic environment continues to exert pressure on the banking system.
“The MPC urged the CBN to intensify its surveillance, in order to address emerging vulnerabilities. The Committee also called on the DMBs to step up credit to the private sector to support economic recovery and convey a positive feedback to the financial system,” the communiqué added.