The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has retained interbank rate at 14 per cent to allow other measures like the foreign exchange market reforms to work through fully.
Announcing the committee’s decision yesterday, the CBN governor, Godwin Emefiele, said the committee decided to retain all the monetary policy instruments at their current levels after it was observed that the interest rate policy seemed to be yielding positive results as foreign cash inflows had improved significantly.
“All 10 MPC members voted to: retain the MPR at 14 per cent; retain the CRR at 22.5 per cent; retain the Liquidity Ratio at 30 per cent, and retain the Asymmetric Window at +200 and -500 basis points around the MPR,” Emefiele announced yesterday.
“The current stance of monetary policy is expected to continue to help lock in expectations of inflation which has started to improve with the gradual return of stability in the foreign exchange market. In this light, the MPC believes that, as inflows improve, the naira exchange rate should further stabilised.”
The 10 out of 12 members of the committee, who took the decision yesterday, disclosed that the economy continues to face elevated risks on both price and output fronts. The committee added that the data available to it revealed that the outlook for inflation in the medium term appears benign.
The decision to retain the interest rate is against the earlier advice of the minister of finance, Mrs Kemi Adeosun, who urged the apex bank to cut interest rates to boost domestic borrowing by the government with a focus to spur economic activities in the country.
But the CBN governor said that despite the tight stance of the monetary policy that came to life in July this year, there had been new capital flows into the economy. He disclosed that, approximately, $1 billion had come in between July and now, while month-on-month inflation had declined continuously since May 2016.
While it noted that stagflation is indeed a very difficult economic condition that continues to threaten the economy, the MPC said “the policy framework must be reengineered urgently to provide a lever for reversing the negative growth trend” so far recorded, stating that monetary policy alone cannot move the economy out of stagflation.”
In a communiqué issued at the end of its 109th meeting which started on Monday and came to an end yesterday, the MPC members re-emphasised the need to prioritise the use of monetary policy instruments in dealing essentially with stability issues around key prices (consumer prices and exchange rate) as prerequisites for growth.
There had been calls on the CBN to reduce interest rates to spur credit growth, not only in the private sector but also by the public sector, which it is believed, will help provide liquidity to stimulate consumption and investment spending. Against this backdrop, Emefiele said after a careful analysis of the numerous calls, the MPC “came to the conclusion that the greatest challenge to the economy today remains incomplete fiscal reforms which raise costs, risks and uncertainty.”
Although the Committee acknowledged the weak macroeconomic performance and the challenges confronting the nation’s economy, the CBN governor said the committee does not want a repeat of past experience when the MPC cut rates to achieve the above objectives only for it to discover that rather than deploy the available liquidity to provide credit to agriculture and manufacturing sectors, the rate cuts which provided opportunities for lending to traders were diverted, a situation, it said, put severe pressure on the foreign exchange market which had limited supply, thus pushing up the exchange rate as an instance.
In the aspect of providing opportunity to the public sector to borrow at lower rates to boost consumption and investment spending, the committee agreed that while it was expected to stimulate growth through aggressive spending, “doing so without corresponding efforts to boost industrial output by taking actions to deepen foreign exchange supply for raw materials will not help reduce unemployment, nor would it boost industrial capacities.”
On the flip side, the MPC stated that the urgency of a monetary-fiscal policy retreat along with trade and budgetary policy, to design a comprehensive intervention mechanism was long overdue.
In the final analysis, Emefiele, who was flanked by members of the committee while addressing the media, said: “The Bank has and shall continue to deploy its development finance interventions to complement the overall effort of fiscal policy towards reinvigorating the economy. The interest rate decisions of the Bank are, therefore, anchored on sound judgment, fundamentals and compelling arguments for such policy interventions.”
On the areas of Monetary, Credit and Financial Markets Developments, the MPC noted that there had been a decline in the equities segment of the capital market as the All-Share Index (ASI) fell by 3.51 per cent from 28,733.90 on July 18, 2016, to 27,725.40 on September 15, 2016.
Similarly, Market Capitalisation (MC) declined by 3.55 per cent from N9.87 trillion to 9.52 trillion during the same period. In addition, relative to end-December 2015, the capital market indices fell by 20.06 per cent and 3.35 per cent, respectively, reflecting the slowdown in the economy. Overall, the capital market did not show vulnerabilities to domestic and external sector developments.
The potential alliance between OPEC and non-OPEC members, like Russia, to reduce quota in the face of disruptions to production in Nigeria, Libya and Iraq, has aided relative stability in the crude oil market.
Reacting to the decision of the MPC in maintaining the status quo, analysts said monetary policy had been stretched to its limit and easing it would have made the apex bank to lose credibility. According to the head, Research and Investment Advisory at Sterling Capital, Sewa Wusu, CBN is trying to encourage capital inflows and they still believe that foreign portfolio will come.
On the comments of the minister of finance prior to the MPC decision that the apex bank should cut rates, Wusu said if the MPC had agreed to the comments of the finance monster, the credibility of the MPC would be at stake “so reversing the decision that it reached at the last meeting was not an option the MPC could have taken.”
Analysts at Cowry Assets Management stated that the MPC decision was justified given the above considerations, especially with the limited tools available to CBN.
“This should help restrain inflationary pressure and buy time for fiscal authority to begin to complement efforts of the monetary authority,” they stated.
FAAC: FG, States, LG Share N510.070bn
The Federation Account Allocation Committee (FAAC) yesterday shared the sum of N510.070 billion among the federal, the state and local government areas (LGAs) of the federation for the month of August 2016. This is more than the N443.663 billion that was shared in the previous month.
The statutory revenue that accrued to the nation’s account rose to N315,045 billion in August from the N287.819 billion received in July, representing a N27.226 billion increase.
“The total revenue distributable for the current month (including VAT) is N510.270 million,” minister of finance, Kemi Adeosun, announced yesterday while addressing journalists at the end of the monthly FAAC meeting in Abuja.
A breakdown of the net allocation to the different tiers of government showed that the federal government got N149.310 billion, representing 52.68 per cent, compared to the N129.212 billion allocated to it in July. On the other hand, the 36 states of the federation got N75.732 billion or 26.72 per cent of the total allocation against the N65.538 billion they received the previous month while LGAs got N58.386 billion, representing 20.60 per cent or N7.859 billion increase from that of July.
The growth in revenue was driven by Department of Petroleum Resources (DPR) and Federal Inland Revenue Service (FIRS), according to the finance minister.
The nation’s Excess Crude Account (ECA) stands at about N2.92 billion, a drop from $3.03 billion that was announced last month.
According to the minister, crude export volume increased by 2.2 million barrels in May 2016 despite the brief Force Majeure that was declared at Qua Iboe and Bonny terminals and a subsisting Force Majeure at Forcados terminal.
“There was $109.40 million revenue increase in Federation Export Sales as a result of the increase in average prices of crude oil from $42.21 in April to $46.06 per barrel in May 2016,” Adeosun said.
She added that a rise in the volume of dutiable imports contributed significantly to the increase recorded by Import Duty and VAT.
“Increase in PPT collections was attributed to receipts from NPDC and Joint Venture Operations. The flexible exchange rate regime helped to boost revenue for the current revenue, including oil and gas royalty,” she added.
Announcing that the distributable Statutory Revenue for the month is N315.045 billion, Mrs Adeosun stated that the sum of N6.330 billion was refunded by NNPC to the federal government.