CBN Denies Over-Funding FG, Retains Rates
BY COBHAM NSA, ABUJA – Amidst denials that the Central Bank of Nigeria (CBN) is over funding the Federal Government, the Monetary Policy Committee (MPC) on Tuesday retained Monetary Policy Rate (MPR) at 14 per cent with all other policy parameters left untouched.
CBN Governor, Mr Godwin Emefiele, who spoke on the outcome of MPC meeting in Abuja, said being one of the most transparent and accountable central banks globally, such reports are baseless and there is no iota of truth in the claims.
Mr Emefiele, while unfolding the MPC’s decision to leave Cash Reserve ratio (CRR) at 22.5 per cent; Liquidity Ratio at 30.0 per cent; with the Asymmetric corridor at +200 and -500 basis points around the MPR, said, “Let me state categorically that the CBN has not over funded the federal government”.
He said in arriving at its decision to retain all policy parameters and rates, “the Committee took note of the gains so far achieved as a result of its earlier decisions; including the stability in the foreign exchange market and the moderate reduction in inflation.”
According to the apex bank boss, following an extensive debate by members, the MPC had options of either holding, tightening or easing the rates but “As in previous meetings, although tightening would help rein in inflation expectations and strengthen the stability in the foreign exchange market, the Committee felt that it would further widen the income gap, depress aggregate demand and adversely affect credit delivery to the private sector.”
He said considering that tightening could have Deposit Money Banks (DMBs) re-pricing their assets and loans, thus raising borrowing cost and heightening the already weak investment climate and Non-Performing Loans (NPLs), the MPC “believed that although while it would make it more attractive for Nigerians to acquire assets at cheaper prices, thus increasing their net wealth, and therefore stimulate spending as confidence rises, it nevertheless, felt constrained that loosening at this time would exacerbate inflationary pressures and worsen the exchange rate and inflationary conditions.
Emefiele stated that the MPC however felt policy loosening would further pull the real rate deeper into negative territory with likely widening gap between the nominal interest rate and inflation.
Furthermore, the Governor said, “the Committee believes that the effects of fiscal policy actions towards stimulating the economy have begun to manifest as evident in the exit of the economy from the fifteen-month recession.
“Although still fragile, the fragility of the growth makes it imperative to allow more time to make appropriate complementary policy decisions to strengthen the recovery. Secondly, the Committee was of the view that economic activity would become clearer between now and the first quarter of 2018, when growth is expected to have sufficiently strengthened and gains in receding inflation, very obvious.
“The most compelling argument for a hold was to achieve more clarity in the evolution of key macroeconomic indicators including budget implementation, economic recovery, exchange rate, inflation and employment generation.”
Emefiele, who is upbeat about the improved external reserves accruals, said, “External reserves position grew to US$32.9 billion at close of business on 25th September, 2017”, even as he submitted that the Investment and Export (I&E) window has increased liquidity and boosted confidence in the market with over US$7.0 billion inflow in the last five months.
He assured that the CBN “will continue to introduce policies that will improve the confidence of foreign investors in the country’s macroeconomic management regime.”
On exchange rates convergence Mr. Emefiele said, “The Committee noted the trend towards convergence between the rates at the bureau-de-change (BDC) and the Nigeria Autonomous Foreign Exchange (NAFEX) segments, as well as the stability of the exchange rate at the inter-bank segment of the foreign exchange market during the review period.
“Similarly, the Committee noted the success of the Investor and Exporters’ window (I&E) of the foreign exchange market and traced this not only to foreign investor confidence but also to the zeal and commitment of Nigerian exporters who have demonstrated preference for the window to the parallel market.”
Citing political agitations, flooding and attacks on farmers by suspected herdsmen that continue to displace most farming communities as risks facing the economy with capacity to reverse gains made so far, Mr Emefiele said these are downside risks to the overall short-to-medium-term positive outlook for the economy.
The MPC is “concern on the sustained pressure on food prices, noting risks posed by floods, strikes and insurgencies in various parts of the country to food production and distribution”, he said.
For him, “the employment gains of recovery were still minimal, and that a number of important job elastic sub-sectors were still weak and may require more fiscal support to regain traction.”
Looking at the health status of DMBs, Emefiele assured that the apex bank would not renege in its supervisory and regulatory roles to ensure the banking sector stay healthy to play its catalytic roles in the economy.
He noted that though NPLs in some banks are worrisome, they are largely still around the acceptable industry’s threshold.
