MPC predicts fragile but promising growth

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has predicted a fragile economic growth for 2018.

To achieve this fragile but promising growth, the Committee urged “the government to initiate strong stabilisation programmes and  freeze the growth in its aggregate expenditure and Federation Account Allocation Committee (FAAC) distributions to create savings needed to stabilise the economy against future oil price related shocks.”

The Monetary Policy Committee “observed increasing monetisation of oil proceeds as evident in the growing FAAC distribution, relative to the 2017 level of disbursements.”

Speaking to reporters at the end of the first MPC meeting in the year following last week’s clearance of nominees, CBN Governor Godwin Emefiele said “forecasts of key macroeconomic indicators give a positive outlook for the Nigerian economy in 2018”.

He said this “is predicated on the quick passage and effective implementation of the 2018 budget, improved security, foreign exchange market stability as well as favourable crude oil prices.”

However on the downside, Emefiele said the Committee “noted the potential impact of the 2019 election- related spending, against the weak backdrop of tax revenue efforts, herdsmen related violence and rising yields in the advanced economies”. “Indications in the US and the UK point to higher interest rates in the short to medium term.”

The Committee was satisfied with “the gradual return to macroeconomic stability as reflected in the third consecutive quarterly growth in real GDP in the fourth quarter of 2017. It also noted the continued moderation in all measures of inflation as well as sustained stability in the naira exchange rate and urged the CBN to sustain the stability to avoid a mission drift”.

Overall, the MPC noted that the recovery of the economy was strengthening, in view of the return to growth of the Services Sector.

Emefiele praised the fiscal sector for continuing to settle its outstanding liabilities, reducing its domestic debt profile, thus increasing the liquidity of the banking system.

The Committee noted that at 14 per cent, the policy rate was tight enough to rein in inflationary pressures. The Committee, therefore, reaffirmed its commitment to price stability conducive to sustainable and inclusive growth.

Members of the MPC were happy about what they described as the “relatively strong balance sheets of the deposit money banks and the stable outlook. This is in spite of the concentration of non-performing loans in a few sectors, which the Committee observed was satisfactorily being addressed by adequate mechanisms established by the CBN to address the phenomenon”.

The MPC also noted that as the government paid off its huge contractor debts, a sizeable portion of these non-performing loans would be addressed. The Committee “urged the CBN to strengthen its supervisory oversight and early warning systems to promptly identify, monitor compliance with extant prudential regulations, sustain macro-prudential policy and manage emerging vulnerabilities in the banking system”.

The MPC then reiterated the CBN’s “commitment to delivery of low interest credit as evidenced in its bold steps to adopt unconventional monetary policy to aid credit flow to vulnerable and growth enhancing sectors of the Nigerian economy.”

The MPC then enjoined the CBN “to continue to support and encourage credit delivery at single digit interest rate through other mechanisms in the interim, while encouraging the banking system to establish frameworks to increase credit delivery to the employment generating sectors of the economy.”

At the end of the meeting, the Committee decided unanimously by a vote of all members present to retain the Monetary Policy Rate (MPR) at 14.0 per cent alongside all other policy parameters.

The MPC voted unanimously to retain the MPR at 14.0 per cent; Cash Reserve Ratio (CRR) at 22.5 per cent; Liquidity Ratio at 30.0 per cent; and Asymmetric corridor at +200 and -500 basis points around the MPR.

MPC members unanimously voted to retain the existing MPR and other monetary indices.

This means that the Cash Reserve Ratio still remains 22.5 per cent and Liquidity Ratio, 30 per cent, the Asymmetric corridor is at +200 and -500 basis points around the MPR.

“The Committee was of the view that further tightening would strengthen the impact of monetary policy on inflation with complimentary effects on capital flows and exchange rate stability.

“Nevertheless, it could potentially dampen the positive outlook for growth and financial stability.

“The committee was also of the view that loosening would strengthen the outlook for growth by stimulating aggregate demand through reduced cost of borrowing.

“However, this may lead to rise in consumer prices, generating exchange rate pressures on the currency in the process.

“The committee also believes that loosening will worsen the current foreign reserve account balance due to increase in importation.

“On the argument to hold, the committee believes that key variables have continued to evolve in line with the present stance of macroeconomic policy and should be allowed more time to fully manifest,’’ he said.

“The window continues to attract more investors boosting foreign exchange supply. Consequently, total foreign exchange inflow through the CBN increased by 73 per cent in Feb. 2018 compared to the previous month.

“Total outflow also increased in Feb. 2018, by 15.69 per cent as a result of higher payment for invisibles, interbank transactions as well as joint venture cash calls payment,’’ he said.

Emefiele said the new MPC members were subjected to rigorous induction, stressing that “they are very qualified individuals with no preconceived notion as to what expect or demand of the committee but individuals who are given data to analyse and make objective decisions in the nation’s interest”.