Yemisi Izuora
.Retains MPR
.CRR
The Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN) has considered far reaching decisions to promote sound economic policies as the real effect of sliding oil prices begins to take toll on the economy.
The MPC meeting which concluded its deliberations today after a two day exhaustive discussion considered promotion of non-oil sectors as alternative areas to boost the economy.
The Committee observed that the last episode of low oil prices in 2005 lasted for a maximum period of 8 months and expressed the fears that the current episode of lower oil prices is projected to remain over a very long period, hence the need to exert energy in developing the non oil sector.
A communique issued at the end of the meeting and endorsed by the CBN governor, Godwin Emefiele said, urged stakeholders to brace up for a longer period of low government revenues from oil sources, which would necessitate hard and uncomfortable choices as the economy transits to more sustainable sources of revenue, consistent with the economic realities and strategic objectives of the country.
The committee said in the circumstance, certain tradeoffs must be envisaged and duly accommodated, adding that in view of the circumstance, the imperative for consistently sound and coordinated macroeconomic policy has become inevitable.
“In the medium term within which monetary policy is cast, the need to allow policy to produce the desired outcomes becomes a key consideration in the policy mix.
Consequently, the Bank is fine- tuning the framework for foreign exchange management with a view to ensuring a more effective and liquid foreign exchange market, taking into account Nigeria’s strategic development priorities; with the policies being designed within an environment of regularly ensuring consistency with monetary and fiscal policies” the committee observed in the communique.
The Committee further noted that at its November 2015 meeting, it eased monetary policy with a view to increasing the liquidity of the banking system, which was aimed at moderating domestic interest rates so as to encourage indigenous businesses to borrow.
While the objective of stabilizing the financial system in the aftermath of the Treasury Single Account (TSA) withdrawals and J. P. Morgan delisting of Nigeria have been largely achieved, the goal of increasing lending to key sectors of the economy is yet to be achieved as the Bank continues to adopt moral suasion to encourage the DMBs to support targeted lending to the real sector including agriculture, solid minerals and SMEs sub-sectors of the Nigerian economy, it noted.
The meeting further observed that despite current challenges, the Committee remain guided by evidence underpinned by credible data in its holistic evaluation of the emerging scenario and in its assessment of policy choices.
“Consequently, the Committee believes that given sound and properly coordinated monetary, fiscal, and external sector policies, there is wide room for optimism about the medium to long term macroeconomic prospects for the Nigerian economy, especially, given the clarity in the policy direction of the administration, the various interventions in the real sector; gradual improvement in the power sector, and the reinvigorated fight against corruption.
The Committee also believes that the effect of the softer monetary policy stance adopted at the last MPC, should start crystalizing soon through expansion of credit to critical sectors of the economy. In addition, the unveiling of the Federal budget, oriented towards socio-economic and infrastructural development is expected to provide the necessary impetus for growth, the communique obtained by Oriental News Nigeria said.
The Committee at the meeting also acknowledged the continuous liquidity surfeit in the system stemming partly from the recent growth-stimulating monetary policy measures, as well as the tendency of the banks to invest excess reserves in government securities, rather than extend credit to the needed sectors of the economy.
The Committee therefore urged the deposit money banks to improve lending to the real sector, as part of their patriotic obligations to the country and enjoined the Management of the Bank to continue to explore ways of incentivizing lending to employment- and growth-generating sectors, particularly SMEs.
The MPC also emphasized the necessity of coordination between monetary and fiscal policies as a prerequisite for resolving the nation’s economic problems, particularly, steering the economy away from oil dependency. In particular, the Committee stressed the need for the fiscal authorities to compliment the Bank’s low interest rate policy orientation by properly coordinating its borrowing activities (and rates) with the Bank in order to push the common objective of stimulating banking system credit delivery at low interest rates to the key sectors of the Nigerian economy. It noted that given the current economic reality of dwindling oil revenue and the rather unclear outlook for commodity prices, there would be need for a recalibration of the fiscal strategy to increasingly explore opportunities in non-oil tax revenue.
It also reiterated its unyielding commitment towards achieving a stable exchange rate regime to ensure more flexibility for sustainable inclusive economic growth in the medium to long term The Committee’s Decisions
The Committee, in consideration of the headwinds in the domestic economy and the uncertainties in the global environment decided by a unanimous vote to retain the Monetary Policy Rate (MPR), Cash Reserve Requirement (CRR), Liquidity Ratio (LR) and the asymmetric corridor of +2/-7 around the MPR.