(Sundiata Post) – The Central Bank of Nigeria (CBN) on Tuesday, after the Monetary Policy Committee (MPC) meeting, decided to maintain flexibility in monetary rates, while watching out for signals on the soundness and stability of the financial system to stimulate growth.
After an extensive debate, six out of seven members of the committee present at the meeting, decided to vote to retain the MPR at 14 per cent; CRR at 22.5 per cent; Liquidity Ratio at 30 per cent; and as well leave the Asymmetric corridor at +200 and -500 basis points around the MPR.
The decision was in consideration 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.
Godwin Emefiele, CBN governor, who addressed the media after the meeting, said the most compelling argument by the MPC members was to achieve more clarity in the evolution of key macroeconomic indicators, including budget implementation, economic recovery, exchange rate, inflation and employment generation.
“On the argument to hold, 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 15-month recession,” Emefiele explained.
He further said although growth was still fragile, it was imperative to allow more time to make appropriate complementary policy decisions to strengthen the recovery.
“Loosening at this time would exacerbate inflationary pressures and worsen the exchange rate and inflationary rate condition,” Emefiele told journalists.
Besides, the Committee was convinced that economic activity would become clearer before the first quarter of 2018, when growth is expected to have sufficiently strengthened and gains in receding inflation, very obvious, he added.
“I think that is clear but he did make a comment which was very instructive that the committee agreed to maintain flexibility, that is apart from keeping the monetary policy rate against all other parameters”, Bismarck Rewane, managing director/CEO, Financial Derivatives Company Limited said.
Rewane added that they agreed to maintain flexibility, while watching out for signals on the soundness and stability of the financial system, to see where they can actually stimulate this growth initiative, economic recovery and growth plan.
“So, there was a window left in my own judgment, to hawk between now and the next MPC and two, to see directional movement in the treasury bill rates in actually open market operation, to bring down the reactional rate down to what can be called acceptable. So in a nutshell good, but I think it is time they have to make a decision to be proactive, rather than just to wait and be reactive”, Rewane added.
But the CBN is concerned that despite the banking sub-sector’s resilience, the weak macroeconomic environment has continued to impact negatively on the stability of the sub-sector.
The MPC asked the CBN to sustain its surveillance of deposit money banks (DMBs) activities for the purpose of prompt identification and mitigation of potential vulnerabilities, calling on the DMBs to support the quest to move the economy forward by extending reasonably low priced credit to the private sector.
At the meeting, Emefiele assured that the CBN was already working with the banks to resolve the rising Non-Performing Loans.
“We, the regulator, came out with prudential guideline and said the maximum level would be five percent. I can tell you that the majority of the banks still hover around five percent or just a little above five. A few of them, no doubt, have gone beyond five and we are working with them, we are analysing their risk asset portfolio, towards ensuring that this is corrected, to ensure that the banking stability that we so badly desire remains sustained,” the governor assured.
Johnson Chukwu, managing director/CEO Cowry Asset Management limited, said the MPC could not have afforded to change the rates, considering that inflation is still high at 16.01 percent and recovery delicate.
On a balance, he said “we should continue to see slow economic recovery, provided the stability in the Niger Delta is sustained”.
The CBN is also optimistic about a relatively positive outlook, predicated on existing policy initiatives, including the Economic Recovery and Growth Plan ERGP of the federal government.
The bank notes that the economic recovery further hinges on the expected increase in government revenue, arising from favourable crude oil prices, stable output, and general improvements in the non-oil sector, especially, agriculture, industry and construction, as it believe its intervention in the real sector would help in output and lower consumer prices.
Some downside risks to the overall short- to medium-term positive outlook for the economy, include flooding, which displaced farming communities and political agitations, as well some other compelling external factors.
In his emailed response, Ayodeji Ebo, managing director, Afrinvest Securities limited, said, “This is in line with analysts’ expectations. This is positive for the economy, as any review to the benchmark rate will distort the equilibrium currently enjoyed in the economy. The monetary policy actors have been able to stabilise the exchange rate, as well as provide FX liquidity.
Ebo said the next step is to officially converge the NIFEX and NAFEX rate, to further entice foreign portfolio investments. That said, the fiscal authorities now need to intensify their efforts to come up with policies that will further engender growth, as well as attract private investments in the major sectors”.
The CBN shares this view and is concerned that the employment gains of recovery were still minimal, noting that a number of important job elastic sub-sectors were still weak and may require more fiscal support to regain traction.
With a 0.55 percent growth in the second quarter of 2017, Nigeria exited its worst recession in 25 years, but there are strong warnings that the economy remains too fragile and could slump even deeper, if pragmatic steps are not taken to consolidate gains.
The apex bank urged fiscal authorities to increase implementation of the capital component of the budget 2017 for the growth-stimulating sectors of the economy to help reduce youth unemployment and restiveness.
The finance ministry however, said on Tuesday, that the federal government has till date, released a total of N336bn from the 2017 Budget to Federal Ministries, Departments and Agencies (MDAs) for funding of capital projects in the first quarter of 2017.
Analysts say the release, nine months into the year, is still quite low, considering the N2.24tn (including capital in Statutory Transfers) which the federal government has planned as capital expenditure for 2017.
The ministry’s confirmation came three months after the finance minister, Kemi Adeosun, said in June, that the government was going to release an immediate N350 billion to sustain capital implementation.
The ministry said in a statement, that the balance of N14bn was still being processed, pending resolution of some formalities within the agencies concerned.
According to details of the releases, Power, Works and Housing received the largest allocation of N90 billion; followed by Defence and Security which got N71 billion; while Transport got N30 Billion. Agriculture received N30 Billion of the capital releases while Water Resources got N12Billion. Other sectors combined, received a total sum of N103 Billion.
The government had earlier admitted that the implementation of the 2017 Budget in the first quarter of the year was very challenging as macroeconomic conditions, though improving, remained under stress.
Adeosun said the prioritization of the release of available funds was made in accordance with the objectives of the Economic Recovery and Growth Plan (ERGP). She said, in 2017, the Federal Government will continue to focus on capital expenditure spending on priority sectors to stimulate economic activities and job creation.
“Despite fiscal constraints, the Federal Government was able to fully cash-back the budgeted capital releases so far made, which is a reflection of the current administration’s commitment to economic development”, the Minister said. (BusinessDay)