Rising from its 115th meeting yesterday, Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) announced that it took the decision to retain the nation’s monetary policy rate at 14 per cent despite exit of the economy from the fifteen-month recession because of its fragile growth.
It also said loosening the monetary rate at this moment could reverse the gains of the economy.
“The fragility of the growth makes it imperative to allow more time to make appropriate complementary policy decisions to strengthen the recovery,” CBN governor, Godwin Emefiele, said in a communiqué at the end of the two-day meeting that was attended by seven members of the committee.
The Committee decided by a vote of 6 to 1 to retain the Monetary Policy Rate (MPR) at 14.0 per cent alongside all other policy parameters. It retained the Cash Reserve Ratio (CRR) at 22.5 per cent; Liquidity Ratio at 30.0 per cent; and Asymmetric corridor at +200 and -500 basis points around the MPR.
According to Emefiele, the most compelling argument to retain all the parameters was to achieve more clarity in the evolution of key macroeconomic indicators including budget implementation, economic recovery, exchange rate, inflation and employment generation.
There have been expectations by some economic and financial experts for loosening of the rate at this time with a hope of making the economy more attractive for Nigerians to acquire assets at cheaper prices, thus increasing their net wealth, and therefore stimulate spending as confidence rises.
But the Committee expressed fears that loosening at this time would exacerbate inflationary pressures and worsen the exchange rate and inflationary conditions.
Although the Committee shared the believe of major stakeholders like the International Monetary Fund (IMF) for tightening of the MPR, saying it would help rein in inflation expectations and strengthen the stability in the foreign exchange market, the Committee said it felt that such move would further widen the income gap, depress aggregate demand and adversely affect credit delivery to the private sector.
“The Committee also noted that tightening may result in the deposit money banks re-pricing their assets and loans, thus raising the cost of borrowing and therefore heightening the already weak investment climate and non-performing loans,” he said in a press conference at the CBN’s headquarters in Abuja yesterday.
The CBN governor also disclosed that apex bank has been able to rake in over N7billion in five months through NAFEX, an online platform where for trading of foreign exchange.
“NAFEX has worked beyond worked beyond our expectation. We are delighted. Over N7 billion has come in five months. It gratifies us that confidence level is building, and all we can just do is to continue to work hard to ensure that areas where there are still grey issues that needed to be addressed would be addressed to ensure that there is maximum confidence that will engender further inflow of fund into the market to support import and also to support further growth of the Nigerian economy,” Emefiele said while responding to questions by our correspondent.
Against the claim by some experts including a member of the MPC that the CBN was directing funding to the federal government, Emefiele said that it was wrong to make such claims.