The Monetary Policy Committee of Central Bank of Nigeria rose from its bi-monthly meeting in Abuja on Tuesday telling Federal Government to settle the N10.6 trillion domestic debts as a way of reflating the economy and save banks from collapse.
The committee also voted to retain Monetary Policy Rate (MPR) at 14 per cent; Cash Reserve (CRR) of banks at 22.5 per cent; Liquidity Ratio at 30.00 per cent; and Asymmetric Window at +200 and -500 basis points around the MPR.
It also reiterated the limitations of monetary policy in reversing the current stagflationary condition in the economy, which it traced to supply and demand shocks.
Briefing the press on the outcome of the meeting, CBN Governor, Godwin Emefiele said “MPC urged the Federal Government to urgently assess the extent of its indebtedness to domestic economic agents and develop a framework for securitizing the debts in order to settle its outstanding domestic contractual obligations which cuts across all sectors of the economy.
“These accumulated debts have slowed business activities of economic agents; most of who are indebted to the banking system, thus compromising the integrity of the financial system.
“The MPC urged the Federal Government to urgently assess the extent of its indebtedness to domestic economic agents and develop a framework for securitizing the debts in order to settle its outstanding domestic contractual obligations which cuts across all sectors of the economy.
“These accumulated debts have slowed business activities of economic agents; most of who are indebted to the banking system, thus compromising the integrity of the financial system.”
He explained that after assessing relevant risks to the global and domestic economy, MPC concluded that the risks to the economy remained highly elevated on two fronts of price and output.
“However, considering the importance of price stability, and being mindful of the limitations of monetary policy in influencing output and employment under conditions of stagflation, the Committee decided unanimously in favour of retaining the current stance of monetary policy, thus keeping the MPR at 14.0 per cent alongside all other policy parameters.”
According to Emefiele, MPC reiterated the limitations of monetary policy in reversing the current stagflationary condition in the economy, which it traced to supply and demand shocks.
“Members stressed the need for a robust and more keenly coordinated macroeconomic policy framework that would restart output growth, stimulate aggregate demand and rein in inflation expectations.
“Consequently, the MPC welcomes efforts at resuscitating planning, noting the progress made in developing the medium term economic recovery plan”, and called for an enrichment of fiscal and other sector initiatives and interventions towards resolving the growth challenges in the economy in order to promptly revive confidence in the economy.
While commending security agencies for clamping down on hawkers and illegal foreign exchange operators, the committee urged a continuation of the exercise.
“MPC believes that the Security agencies should sustain their checks on the activities of illegal foreign exchange operators in order to bring sanity to that segment of the market. The Committee reiterated that the extant foreign exchange regulation outlaws the trafficking of currency on the streets as some unlicensed operators currently do. Thus, to evolve an appropriate naira exchange rate that stabilizes the foreign exchange market, BDC operators must strictly observe the terms and conditions of their license”, the Governor reported.
It then warned that outlook for growth and inflation in the medium term continues to be challenging. “Growth is expected to remain less robust given the absence of sufficient fiscal space while the current tight stance of monetary policy and improved agricultural harvests are expected to contain further price increases and moderate price expectations as the trend has already revealed”, he declared.
Also, the CBN The Central Bank of Nigeria (CBN) on Tuesday endorsed the crackdown on parallel market traders by the officials of the Department of State Services (DSS) across the country.
Emefiele, disclosed this while addressing journalists at the end of its Monetary Policy Committee (MPC) meeting in Abuja.
According to Emefiele, the foreign exchange regulation in the country forbids trafficking in currency.
He said that the DSS had the rights to enforce the law and make sure that currency hawkers were forced out of the “illegal trade.’’
The governor, who noted that it was demeaning for traders to hawk currency on the streets, urged the traders to legitimise their business by applying for Bureau De Change (BDC) licence.
NAN reports that officials of the DSS had raided the parallel markets in Lagos, Abuja and Onitsha over alleged arbitrary sale of forex.
The raid, which worsened dollar scarcity at its wake, had forced the naira to settle at N465 to a dollar.
Earlier, members of the MPC unanimously voted in favour of retaining the Monetary Policy Ratio (MPR) at 14 per cent, Cash Reserve Ratio (CRR) at 22.5 percent and the liquidity ratio at 30 per cent.
The governor said that the members of the committee took the decision after a critical assessment of the risks to the economy.