MPC increase MPR by 200 basis points
…called on government to fast-track budget implementation

By Kayode Ogunwale

 

In their efforts to improve Nigeria economy, the Monetary Policy Committee (MPC) members have increased the Monetary Policy Rate (MPR) by 200 basis points.
The committee that met on 25th and 26th July 2016 against the backdrop of fragile global and domestic economic and financial conditions increased the MPR from 12 per cent to 14 per cent.
Briefing journalist at the end of MPC meeting, Central Bank of Nigeria Governor, Mr. Godwin Emefiele said, out of eight members attended the meeting, five members voted to raise the MPR while three voted to hold.
Emefiele said, “MPC recognising that the bank lacked the instruments required to directly jumpstart growth, and being mindful not to calibrate its instruments in such a manner as to undermine its primary mandate and financial system stability, in assessment of the relevant issues, was of the view that the balance of risks remains tilted against price stability.”
In the same vein, the committee voted to retain the Cash Reserve Ratio at 22.50 per cent; retain the Liquidity Ratio at 30.00 per cent; and retain the Asymmetric Window at +200 and -500 basis points around the MPR.
They recognised the weak macroeconomic environment as reflected particularly in increasing inflationary pressure and contraction in real output growth.
In view of this, the MPC underscored the imperative of coordinated action, anchored by fiscal policy to initiate recovery at the earliest time.
They however called on the federal government to fast-track the implementation of the 2016 budget in order to stimulate economic activity to bridge the output gap and create employment.
Members noted that the negative real interest rates did not support the recent flexible foreign exchange market as foreign investors attitude had remained lukewarm and showed unwillingness in bringing in new capital under the circumstance.
Consequently, they were of the view that an upward adjustment in interest rates would strongly signal not only the bank’s commitment to price stability but also its desire to gradually achieve positive real interest rates.
They believed that it would boost manufacturing and industrial output, thereby stimulating growth which is desired at this time.
They expressed strong support for the urgent diversification of the economy away from oil to manufacturing, agriculture and services; and called on all stakeholders to increase investment in growth stimulating and high employment elasticity sectors of the economy in order to lift the economy out of its current phase.
Speaking on monetary, credit and financial markets developments, Emefiele said, “Broad money supply (M2) grew by 8.26 per cent in June, 2016, a 4.80 percentage points increase from 3.46 per cent in May compared with the 0.54 per cent contraction in June 2015. When annualized, M2 grew by 16.52 per cent in June 2016 against the provisional growth benchmark of 10.98 per cent for 2016. Net domestic credit (NDC) grew by 12.52 per cent in the same period and annualized at 25.04 per cent. At this rate, the growth rate of NDC exceeded the provisional benchmark of 17.94 per cent for 2016. There was no change in the level of banking sector net credit to government in June, contrasting the 31.45 per cent growth in May. Credit to the private sector grew by 14.45 per cent in June 2016, which annualizes to a growth of 28.90 per cent, outperforming the benchmark growth of 13.38 per cent for the year.”
The committee expressed cautious satisfaction over the improved performance of credit to the private sector and urged the bank to ensure that the tempo is sustained in order to stimulate recovery of output growth.