CBN maintains monetary policy rate at 14%

By Kayode Ogunwale

Monetary Policy Committee (MPC) of Central Bank of Nigeria (CBN) has decided to maintain the current stance of monetary policy in Nigeria.

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 Monetary Policy Rate at 14 per cent; Cash Reserve Ratio at 22.5 per cent; Liquidity Ratio at 30.00 per cent; and retain the Asymmetric Window at +200 and -500 basis points around the MPR.

According to the CBN Governor, Mr. Godwin Emefiele, the committee assessed the relevant risks to the global and domestic economy and concluded that the risks to the economy remained highly elevated on two fronts (price and output).

Emefiele said the committee assessed the fragile macroeconomic conditions and the strong headwinds confronting the economy. “In particular, the committee considered the implications of the twin deficits of current account and budget deficits, the rise of nationalist sentiments across the West and implications for national elections in France and Germany as well as the forthcoming referendum in Italy.”

Other considerations include the yet to be unveiled long term uncertainties of Brexit and expectations of significant shifts in US economic policy. The Committee reaffirmed the urgency of prioritizing the diversification of the economy given the emerging gloomy protectionist outlook of the global economy.

The committee also evaluated the impact of its July and September 2016 actions on the macroeconomy noting that while foreign exchange inflows into the economy had improved significantly in July and August, it declined after the September MPC meeting, leading to rising inflation and increasing negative real interest rates. However, outflows significantly dropped, lending credence to the propriety of the decisions of the July and September MPC meetings.

The 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.

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. It also advised the Bank to commit to greater surveillance and deployment of early warning systems in managing the banking system, Emefiele said.