Nationwide Applause For President Buhari As CBN Retains All Rates: See Factors Emefiele, Others Considered

By Joshua Amaugo April 5, 2018 12:12

Nationwide Applause For President Buhari As CBN Retains All Rates: See Factors Emefiele, Others Considered

The Central Bank of Nigeria, CBN, on Wednesday, April 5, expressed concern over the increase in allocations to the three tiers of government, stating that, there was a need for strong stabilization programmes to freeze the growth in aggregate expenditure.

The re-constituted Monetary Policy Committee, MPC, held its maiden meeting, the 260th meeting of the Committee, its first in 2018, on the 3rd and 4th of April, 2018, against the backdrop of strengthening global growth and improving domestic economic conditions.

The Committee assessed the developments in the global and domestic economic environments during the first quarter of 2018, including the risks to price stability, financial stability, and economic growth, in the short-to-medium term.

According to the CBN Governor, Godwin Emefiele, the Committee called on the Federation Account Allocation Committee, FAAC, to create savings needed to stabilize the economy against future oil price-related shocks.

He said: “The Monetary Policy Committee observed increasing monetization of oil proceeds as evident in the growing FAAC distributions relative to the 2017 level of disbursement.

“The Committee urged the government to initiate strong stabilization programmes and to freeze the growth in its aggregate expenditure and FAAC distributions, in order to create savings needed to stabilize the economy against future oil price-related shocks.”

The Committee in its appraisal called on the National Assembly to speedily pass the 2018 budget.

One of the resolves of the Committee, is that the quick passage of the 2018 budget would keep the fiscal policy on track, and deliver the urgently needed reliefs in terms of employment and growth for the people.

Recall that the 2018 Appropriation Bill, was submitted in October last year by President Muhammadu Buhari, and has been a subject of disagreement between the Executive and the National Assembly.

Emefiele announcing the Committee’s decisions at the end of its two-day meeting held at the apex Bank’s headquarters in Abuja, urged the Federal Government to offset its huge debts to Contractors.

He said if the N2.7 trillion ontractor debts were settled by the Federal Government, a sizable portion of the huge non-performing loans in the Deposit Money Banks would be addressed.

“The Committee notes with satisfaction the gradual implementation of the Economic Recovery and Growth Plan, in an effort to stimulate economic recovery”.

The Committee also called on Banks to strengthen its supervisory oversight and early warning systems to promptly identify, monitor compliance with extant prudential regulations, sustain macro-prudential policy, and manage emerging vulnerabilities in the banking system.

The Committee reiterated the Bank’s commitment to delivery of low-interest credit as evidenced in its bold steps to adopt unconventional monetary policy to aid credit flow to vulnerable and growth-enhancing sectors of the Nigerian economy.

The Committee, therefore, enjoined the Bank to continue to support and encourage credit delivery at single digit interest rate through other mechanisms in the interim, while encouraging the banking system to establish frameworks to increase credit delivery to the employment generating sectors of the economy.

In consideration of available data and evolving macroeconomic indicators, the Monetary Policy Committee noted that it is committed to revisiting its decisions in the short to medium term as the fundamentals evolve.

The Committee was of the view that further tightening would strengthen the impact of monetary policy on inflation, with complementary positive effects on capital flows and exchange rate stability.

It could also potentially dampen the positive outlook for growth and financial stability.

However, the MPC is of the view that loosening would strengthen the outlook for growth by stimulating domestic aggregate demand through reduced cost of borrowing.

This may, however, lead to a rise in consumer prices, generating exchange rate pressures on the currency in the process.

The Committee also believes that loosening could worsen the current account balance, through increased importation.

On the argument to hold, the Committee believes that key macroeconomic variables have continued to evolve in a positive direction, in line with the current stance of macroeconomic policy and should be allowed more time to fully manifest.

Sequel to the back and forth argument not to increase or reduce the MPR rate, the CBN Governor concluded by saying the Committee agreed to leave the Monetary Policy Rate unchanged at 14 percent.

He noted that the nine members of the Committee unanimously agreed to maintain the current monetary policy stance.

He said apart from the MPR, the Committee also retained the Cash Reserves Ratio at 22.5 percent and the Liquidity Ratio at 30 percent; while the Asymmetric Window was left at +200 and -500 basis points around the MPR.

Emefiele added that the Committee observed with satisfaction the continued rise in the external reserves under President Muhammadu Buhari’s government, but urged the CBN not to relent in building buffers against future price downturns.

He said the Bank would use the strength of its reserves, which he put at $49.69 billion, to support the development of the nation’s refineries, by supporting investors in that sector.

He noted: “The Federal Government is encouraging private sector investors to come into the refineries, and what we do expect is that when those private investors are coming into Nigeria to do business, if they are foreign, they will come with dollars and will not need our dollars; but if they are local and would want to import equipment, of course, they will need our dollars.

“We have lots of dollars to allocate to them to bring in their equipment, and I assure anyone who is interested in going into refinery business, that if you have your licence, we will accord priority to you to import that equipment, because we badly need them here.

“We all know that importation of petroleum products into the country constitutes a large portion of our imports, and at some point rising to about 25 percent of our import volume; and we think that if we accelerate the process of investors going into refineries, it will further help to conserve our forex for the importation of goods we cannot produce in Nigeria”, Emefiele said.

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