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CBN Retains Interest Rate At 14%



The Monetary Policy Committee of the Central Bank of Nigeria (CBN) yesterday retained the Monetary Policy Rate at 14 per cent once again due to current uncertain economic conditions and high inflation.
The MPC has not made any major monetary policy change since July 2016.
The MPC said it took the decision to retain the Monetary Policy Rate (MPR) at 14 per cent because it viewed that “further tightening would widen the income gap, depress aggregate consumption and adversely affect credit to the real sector of the economy.”
The International Monetary Fund (IMF) had urged the CBN to tighten the MPR to attract foreign direct investments to the country. In consideration of the challenges weighing down the domestic economy and the uncertainties in the global environment, the CBN governor, Godwin Emefiele said the Committee decided by a unanimous vote to retain the MPR at 14.0 per cent alongside all other policy parameters.
The MPC retained the MPR at 14 per cent; CRR at 22.5 per cent; Liquidity Ratio at 30.00 per cent; and Asymmetric corridor at +200 and -500 basis points around the MPR.
Emefiele said the decision was “intended to allow the existing policies to fully achieve their intended goals and objectives.” On the other hand, the Committee noted that the cost of capital in the economy remains high and not helpful to growth.
In a communique at the end of the MPC’s two-day meeting yesterday, governor Emefiele said against the backdrop of the rather unclear outlook around key economic activities (food production especially) and some optimism about current deceleration in inflation as well as relative stability in the naira exchange rate, “the MPC was reluctant to alter the current policy configuration in any fundamental manner.”
In response to stakeholders calling for a reduction in the MPR, the CBN Governor expressed the concerned of the MPC that loosening it would exacerbate inflationary pressures and worsen the gains so far achieved in the exchange rate of the naira.
“It was also convinced that loosening would further increase the negative real interest rate as the gap between the nominal interest rate and inflation widens,” he said.
On the financial stability outlook, the Committee noted that in spite of the banking sector’s resilience, the weak macroeconomic environment has continued to exert pressure on the banking system.
The MPC urged the CBN to intensify its surveillance, in order to address emerging vulnerabilities. The Committee also called on Deposit Money Banks (DMBs) to step up credit to the private sector to support economic recovery and convey a positive feedback to the financial system.
The MPC members said 2.0. Overall Outlook and Risks Available data and various forecasts of key economic variables as well as assessment of government initiatives, including the recently released Federal Government Economic Recovery and Growth Plan (ERGP), are pointers to the prospects of the Nigerian economic recovery in 2017.
Emefiele disclosed that total foreign exchange inflows through the CBN increased by 69.77 per cent in April, 2017 compared with the previous month. Total outflows, however, rose, but less significantly, at 29.35 per cent during the same period. Consequently, the Committee observed that the average naira exchange rate remained stable at the inter-bank segment of the foreign exchange market in the review period
Meanwhile, Emefiele yesterday announced that it has injected the sum of $186.5million into the invisible and the whole Wholesale Secondary Market Intervention Sales (SMIS) segments of the forex market.
The CBN governor while responding to questions yesterday in the backdrop of the Monetary Policy Committee meet said the bank will continue to intervene in the forex market, adding, the intervention will be more vigorous and intense based on the determination to see a convergence of the markets.
The sum is made up of $36.5 million in the invisibles, $50m for Small and Medium Enterprises (SMEs) segments and $100 in the wholesale segment. The Central Bank of Nigeria (CBN) also approved the sale of $100 million at the Wholesale Secondary Market Intervention Sales (SMIS) auction announced on Monday, May 23, 2017.
Acting director, Corporate Communications in the bank, Isaac Okorafor said the sales at both the invisible and wholesale segments were settled on Tuesday, May 23, 2017.