Yemisi Izuora
The Monetary Policy Committee (MPC) has left the Monetary Policy Rate at 14 per cent, so as to combat inflation due to foreseen increase in government spending ahead of the 2019 elections.
The Central Bank of Nigeria (CBN) Governor, Mr Godwin Emefiele said this when he briefed newsmen in Abuja on Tuesday on the outcome of the third Monetary Policy Committee meeting for the year.
He said the MPC members by a vote of seven to 11 agreed to retain the existing MPR and other monetary indices.
This means that the Cash Reserve Ratio still remained 22.5 per cent, Liquidity Ratio, 30 per cent, the Asymmetric corridor is at +200 and -500 basis points around the MPR.
“The committee strongly considered the option of tightening, believing that tightening will curtail the threat of a rise in inflation even as the injection from the fiscal authorities will still provide the economy with substantial liquidity.
“However, the committee was of the view that tightening will trigger the repricing of financial assets by banks and further constrict the real sector from promoting inclusive growth.
“In considering the option of loosening, the committee accessed the potential effect of stimulating aggregate demand through lower cost of capital. This could stimulate consumption and aggregate demand.
“The committee, however, considered its potential relevance, taking into account the expected liquidity injection from the 2018 budget, increased FAAC disbursements and election related spending ahead of 2019 general elections.
“If this crystalises, it will increase inflationary and exchange rate pressures as well as return interest rates into trajectory.
“Moreover, lowering policy rate may not translate to an automatic reduction in market rate due to poor transmission mechanisms,’’ he said.
Emefiele said that the committee expressed concern over the threat posed by incessant herders and farmers’ crisis in some key food producing states.
He harped on the need to address the menace as it was already having negative impact on some key food supplies chain.
“In discussing the economic report, it was observed that as the prices of crude oil increased in 2017 and 2018, the monthly allocation to various levels of government also increased.
“This suggests that Federal Government was not conscious of saving for the rainy day.
“The committee, therefore, advise the fiscal authorities to build buffers, especially now that the prices of crude oil is relatively high,’’ he said.
Emefiele said that the MPC was also concerned with the decreased number of loans given out by Money Deposit Banks (DMBs).
To this end, he said that the bank would continue to churn out polices aimed at encouraging banks to increase the flow of credit to the real economy to consolidate economic recovery.
“In addition, as a way of incentivising the DMBs to increase lending to the manufacturing and agricultural sectors, a differentiated dynamic cash reserve requirement regime will be implemented.
“This will direct cheap long term bank credit at nine per cent, a minimum tenor of seven years and two years moratorium to the employment elastic sector of the economy,’’ he said
Emefiele said that details of the framework would be released soon, once the Banking Supervision and the Monetary Policy Department of the CBN finalises its work.