Finance

Godwin Emefiele: Why central bank retained monetary policy rates

The Central Bank of Nigeria (CBN) on Monday said its Monetary Policy Committee (MPC) opted to retain monetary policy rates to rein in inflation and stabilise the economy.

Inflation, which is the aggregate cost of goods and services over a period, dropped from a high of over 18 per cent in January 2017 to about 14.33 per cent at the end of last month.

Even at the current level, analysts say inflation is still high, and would need to drop to single digits before any intervention in the prevailing Monetary Policy Rate (MPR) to avoid further dragging real interest rate into the negative zone and blurring the impact in the foreign exchange market.

The CBN governor, Godwin Emefiele, said this informed the MPC’s decision during its rescheduled meeting on April 3 and 4 to retain MPR, popularly called lending rate, at 14 per cent.

During the meeting, the committee also resolved to maintain Cash Reserves Requirement (CRR), which is the minimum fund the CBN can allow a commercial bank to hold in its reserves, at 22.5 per cent per annum.

Also, liquidity ratio was kept unchanged at 30 per cent, with asymmetric corridor maintained at plus 200 and minus 500 basis points around the monetary policy rate.

Speaking on the topic, “Sustaining Economic Growth Beyond Recession”, the CBN governor said the bank’s policies and interventions played a significant role in bringing the country out of its first recession in over 25 years.

Represented by the newly appointed Deputy Governor of the Bank in charge of Corporate Services, Edward Adamu, the CBN governor identified the massive drop in global oil prices from an average of about $110 per barrel to less than $28 as one factors that plunged the Nigerian economy into recession.

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Other factors, he said, included the sudden withdrawal of about $85 billion per month from the global economy by the United States’ Federal Reserve System and geopolitical tensions amongst global trade leaders.

Mr Emefiele said these global shocks triggered five consecutive quarters of Gross Domestic Product (GDP) contraction of the country’s economy at minus 2.3 per cent in the third quarter of 2017, from nearly 7 per cent in previous years.

With inflation rising to a peak of over 18 per cent in January 2017, he said unemployment rate equally increased to about 16.2 per cent in the second quarter of 2017, while the exchange rate depreciated to over N520 to the dollar during the period.

He said under the difficult economic environment, the bank was compelled to consider policies, including increasing monetary policy and aggressive open market operations, to stimulate the recovery of the economy and reverse the negative trends.

Other measures included demand management by restricting foreign exchange supply for imports of 41 items to boost local production and increase external reserves.

Besides, he said, the bank also stepped up its intervention in financing activities in key high sectors of the economy like power, aviation, education, micro, small and medium enterprises as well as agriculture, including the Anchor Borrower Programme.

These policies and interventions, he noted, helped the economy to recover, with GDP recording positive growths of 0.7 and 1.4 per cent in the last two quarter in 2017; inflation declining from a peak of 18.7 per cent in January 2017 to 14.3 per cent in March 2018, and exchange rate stabilising for more than eight months at about $360 to the dollar.

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Again, he said, the country’s foreign reserves have continued to grow from about $23 billion in October 2016 to more than $47.37 billion as at April 5, 2018.

To sustain the recovery and avoid slipping into another recession, Mr Emefiele warned Nigerians to remain vigilant and ensure political leaders and policymakers were not allowed to be complacent of their responsibilities.

“We must strive to improve and sustain the same policies that got the economy this far. Our import bill may have fallen, but our manufacturing and agriculture sectors still have a long way to go if we must attain self-sufficiency.

“We must not be quick to discard the restrictive measures which aided our recovery simply because the metrics have improved,” the CBN governor said.

On its part, he assured that the bank would continue to fine-tune its policies and strategies and remain proactive in optimising the welfare of Nigerians, including the provision of access to credit to sectors with potentials to create jobs on a mass scale.

Apart from expanding the Anchor Borrowers’ Programme to other crops and states, he said the bank was currently finalising the creation of a N500 billion fund with the Nigeria Export-Import Bank to assist local manufacturers interested in non-oil exports.

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