Rising from its two-day meeting in Abuja on Tuesday, the Monetary Policy Committee (MPC) of Central Bank of Nigeria expressed worry over a hazy economic outlook for the remaining part of 2017.
However, after considering the pros and cons, the committee decided to leave all its basic rates unchanged including Monetary Policy Rate (MPR): 14 percent; Cash Reserve Ratio (CRR) 22.5 per cent; Liquidity Ratio at 30.00 per cent; and Asymmetric corridor at +200 and -500 basis points around the MPR.
This it decided in view of the challenges weighing down the domestic economy and the uncertainties in the global environment.
MPC observed that data and forecasts of key economic variables as well as assessment of government initiatives all point to prospects of recovery in 2017.
However, it urged a timely implementation of Economic Recovery and Growth Plan (EPRG), judicious execution of the approved 2017 Budget and sustenance of the new foreign exchange implementation regime supported by the restoration of security in different parts of the country, especially, in the Niger Delta region as these would help accelerate growth and restore confidence in the economy.
Reviewing the economy in the last two months since it met last, MPC according to Governor of the Bank, Godwin Emefiele, who briefed the press on the outcome of the meeting noted that total foreign exchange inflows through the bank 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.
He then disclosed that more than $1.1 billion private capital has been injected into the interbank segment of the foreign exchange market.
“If about 70 percent is coming in from non-oil exporters and some foreign portfolio investors, it means that there is support for the segment of the market which is a willing buyer, willing seller market.”
The MPC however, identified the downside risks to this outlook to include the possibility of low oil prices due to renewed investments in shale oil exploration and production, continuing monetary policy normalization by the U.S. Fed which may result in strengthening of the U.S dollar, and consequent capital reversal from Nigeria and other emerging market economies.
Also, the MPC believes that the inflation outlook does not appear benign as the limit of the base effect driving the current moderation in prices may have been reached.
“Notwithstanding the improved outlook for the economy, the Committee weighed the implications of continuing global uncertainties arising from the dwindling commitment to global cooperation, the strengthening of the U.S. dollar, and the unsteady commodity prices.
“The Committee similarly evaluated other challenges confronting the domestic economy and the opportunities for achieving economic growth and price stability in 2017.
“The MPC was of the view that whereas the downward trend in inflation in April 2017 is a welcomed development; the rate was still significantly above the policy reference band.
“The MPC is particularly pleased with the gradual retreat in inflation, the relative stability in the Naira exchange rate across all segments of the foreign exchange market and the improved prospects of foreign investment inflow.”
Explaining the dilemma of MPC while contemplating either to retain, ease or tighten existing rates, Emefiele said MPC noted the associated risks to banking system liquidity of the envisaged fiscal injections during the remainder of the year.
“Against this risk, the Committee contemplated the prospects of further tightening of monetary policy should the need arise.
“The MPC however, noted that further tightening would widen the income gap, depress aggregate consumption and adversely affect credit to the real sector of the economy.
“This is 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.
“The MPC was however, concerned that loosening 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.”
The Committee also called on the DMBs to step up credit to the private sector to support economic recovery and convey a positive feedback to the financial system.
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