By Nse Anthony-Uko
ABUJA, (Sundiata Post) – The Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) retained all policy rates on at the end of its meeting on Tuesday following considerations for liquidity risks expected to emanate from rising FAAC allocations, the threat of higher 2018 budget spending, the risk of a supplementary budget allowing for a rise in the minimum wage, and other elements of pre-election spending.
The committee said it resolved to retain all monetary policy parameters until the key indicators in the federal budget and the implementation of fiscal policy in 2018 become clearer.
CBN governor, Godwin Emefiele, said at the end of the meeting of the committee that members resolved to retain the monetary policy rate (MPR), at 14 per cent, the cash reserve ratio (CRR), at 22.5 per cent; liquidity ratio at 30 per cent, and asymmetric corridor at +200 and -500 basis points around the MPR.
The resolution of the Committee confirmed projections by economic analysts who said they were not expecting any intervention by members to change the fundamentals.
“The primary reason the MPC decided to hold the MPR was for the key indicators in the federal budget and the implementation of fiscal policy in 2018 to become clearer,” the CBN governor said.
He said the delay in the passage of the 2018 budget would result in significant high level of uncertainties from the fiscal operation of the federal government in the near term.
Although the CBN governor said the MPC members expect an expansionary fiscal budget in 2018, they are not certain about the potential effect in the face of increasing allocation from FAAC meetings, increase in price of crude oil as well as election related spending in the buildup to 2019 elections.
The Committee noted the issues likely to shape the global economic activities and outcomes in the near future.
The issues include geo-political tensions, easing situation in the Korean Peninsula, reduced trade tension between China and the U.S, withdrawal from the Iranian Nuclear deal by the U.S, easing financial conditions in the Euro area, UK and Japan as well as issues associated with the UK BREXIT negotiations.
He said with the end of the implementation of the 2017 budget, the proposed level of exposure to domestic and external markets in 2018 would increase in the face of dwindling revenue projections and the full implementation of the 2018 budget.
Although the Committee considered cutting down on the MPR to stimulate aggregate demand through lower cost of credit, he said member were worried the outcome would likely exacerbate inflationary pressures.
Besides, he said lowering the lending rate may cause higher pressures on the exchange rate as the demand for foreign exchange increases, pushing real rate into negative territory.
“Lowering the lending rate may not necessarily translate into lowering market lending rate on account of high cost of doing business.
“Loosening could worsen the current account balance through increased importation, margin lending, lowering risk evaluation in accessing loans, drive up loans and increasing the level of non-performing loans as well as potential negative consequences on the stability of the banking industry,” he said.
On revenue, Mr Emefiele said the committee expects it to grow in view of the improved prices of crude oil at the international market in recent times as well as improvement in non-oil revenue.
He however urged revenue generation agencies to step up efforts at more tax revenue generation, assuring the CBN would work with banks to develop new strategy towards increased lending to boost productivity and growth.
On the growth in the economy, the committee expressed satisfaction with the current domestic outlook, particularly the implementation of the Economic Recovery & Growth Plan, although it expressed concern that the delay in passing the 2018 Appropriation Bill could derail its objectives.
The committee urged the government to sustain the implementation of the economic recovery plan by setting up a committee to ensure the effective implementation of the 2018 budget to further stimulate the economy.to further accelerate the economic recovery.