Governor of the Central Bank of Nigeria has said the country’s economic recovery could relapse if strong and bold monetary and fiscal policies are not activated to sustain it.
Emefiele said that reducing the interest rate at this time will put the country in a negative territory which is a disincentive to investment.
Emefiele who briefed journalists on the outcome of the 257 Monetary Policy Committee (MPC) meeting in Abuja, said with the drop in inflation rate from 18.8 per cent to 16.1 percent, there is hope that interest rate will be reduced soon but Nigeria is not yet ready to tow that path.
“The economy is on a path to moderate recovery with a positive short- to medium-term outlook, premised largely on fiscal stimulus and a stable naira exchange rate. Inflation expectations also appear sufficiently anchored with the current stance of monetary policy’
“Data from the National Bureau of Statistics (NBS) showed that the contraction in the economy moderated to 0.52 per cent in Q1 2017 from 1.30 per cent in Q4 2016. The data further revealed that fifteen economic activities recorded positive growth in Q1 2017, showing strong signs of recovery”.
He explained that whatever actions taken to stimulate growth when inflation has risen above the 12 percent range will end up retarding growth, even as he was optimistic that the reverse in inflation will continue to trend downwards.
“There are acceptable modules for computing the inflation threshold and these modules have computed the inflation threshold for Nigeria at a range of between 10 to12 percent meaning that when inflation rises above 12 percent, whatever action that is taken to stimulate growth will end up retarding growth.
“We understand that there is need for a low interest rate, but a disincentive to investment will hurt our stability that we have so far achieved in the foreign exchange market and there is a need for us to ensure that these does not happen. That is the rationale behind holding interest rate. We understand the pain but then I assure you that the actions of the MPC will be reflected in whatever direction that we think is good for Nigeria and for Nigerians”.
Benchmark retained
Meanwhile, the Apex Bank Governor, announced that the Committee voted to retain its benchmark interest rate at 14 per cent.
Emefiele said the Committee also decided to keep the Cash Reserve Ratio (CRR), at 22.5 per cent, Liquidity Ratio at 30 per cent and the Asymmetric Corridor at +200-500 basis points around the MPR.
He disclosed that 2 of the 8 members who attended the meeting had voted to cut the headline rate, while the other 6 members voted to retain the MPR and all other parameters at their current levels.
“In consideration of the headwinds confronting the domestic economy and the uncertainties in the global environment, the Committee decided by a vote of 6 to 2 to retain the Monetary Policy Rate (MPR) at 14.0 per cent alongside all other policy parameters. Consequently, 6 members voted to retain the MPR and all other parameters at their current levels while two members voted to ease the stance of monetary policy.
“In summary, the MPC decided to Retain the MPR at 14 per cent; Retain the CRR at 22.5 per cent; Retain the Liquidity Ratio at 30.00 per cent; and Retain the Asymmetric corridor at +200 and -500 basis points around the MPR”, Emefiele said.
The CBN Governor, said the Committee expressed concerns over the increasing fiscal deficit estimated at N2.51 trillion in the first half of 2017 and the crowding out effect of high government borrowing and called for fiscal restraint to check the growing deficit.
Emefiele said the Committee welcomed the proposal by government to issue sovereign-backed promissory notes of about N3.4 trillion for the settlement of accumulated local debt and contractors arrears.
“The Committee welcomed the move by the fiscal authorities to engage the services of asset-tracing experts to investigate the tax payment status of 150 firms and individuals in an effort to close some of the loopholes in tax collection, towards improving government revenue.
However, the Committee expressed concern about the slow implementation of the 2017 Budget and called on the relevant authorities to ensure timely implementation, especially, of the capital portion in order to realize the objectives of the Economic Recovery and Growth Plan”.
