July 26, 2017
By Chijioke Nelson and Mathias Okwe
The Central Bank of Nigeria (CBN) yesterday retained rates across board, citing domestic economy and the uncertainty in the global environment. The decision also tallied with expectations of economy analysts polled by The Guardian ahead of the meeting last weekend.
CBN Governor, Godwin Emefiele, while presenting the communiqué of the Monetary Policy Committee (MPC), pointed out that the consideration of headwinds confronting the domestic activities and the uncertainties shrouding the global environment, there was "a vote of six to two to retain the Monetary Policy Rate (MPR) at 14 per cent."
They also retained Cash Reserve Ratio (CRR) at 22.5 per cent; Liquidity Ratio at 30.00 per cent; as well as the asymmetric corridor (CBN borrowing and lending with banks) at +200 and -500 basis points around the MPR.
The argument for holding is largely premised on the need to safeguard the stability achieved in the foreign exchange market, and to allow time for past policies to work through the economy.
According to him, the committee thinks that easing at this point would signal sensitivity to growth and employment concerns and encouraging the flow of credit to the real economy, as well as promote policy consistency and credibility.
However, the option would predispose further risks, particularly, upstage the modest stability achieved in the foreign exchange market, raise the possibility of exit of foreign portfolio investors, as well as resurge inflation with intensified implementation of the 2017 budget.
He noted that while available forecasts of key indicators point to a fragile economic recovery in the second quarter, there was need for caution to avoid relapse to a more protracted recession.
The committee suggested that the expected fiscal stimulus and non-oil federal receipts, as well as improvements in economy-wide non-oil exports, especially agriculture, manufacturing, services and light industries, must be pursued relentlessly.
But the Chief Executive Officer of Cowry Asset Management Limited, Johnson Chukwu, said the decision was expected, as otherwise would have been counter-productive.
He however noted that by the decision, the economy would sustain its slow and painful recovery mode, until the stability is fully returned. "The real sector fund challenge (high interest rate) will stay. Foreign exchange will be steady as there would be no much fund to pursue dollar.
"Interbank lending would also remain high as the apex bank continues liquidity mop up, unless the promised payment of contractors, which is largely doubtful, is quickly realised," he said.
Reacting to the development, the Director of Research and Advocacy of the Lagos Chambers of Commerce and Industry, Dr. Vincent Nwani told The Guardian that it was disheartening for the apex bank to have maintained the tightening stance