MPC retains, tight position policy, MPR at 14%, CRR 22.5% LR 30%
GOVERNOR of the Central Bank of Nigeria has said that it is not unusual for Deposit Money Banks DMB and other financial institutions to face systemic risk during economic recession such as Nigeria is going through now, but measures have been put in place to ensure that the situation did not get out of control. This was stated during the press briefing after the Monetary Policy Committee meeting yesterday in Abuja. According to him, “there is no doubt that the current recession is affecting the banking system as well as other sectors. But we have put in place measures that will contain it.” He also said that the Committee members voted to retain a tight stance in order to avoid overloaded inflation rate in the economy. In summary, all 10 MPC members voted to: Retain the MPR at 14 per cent, the CRR at 22.5 per cent, the Liquidity Ratio at 30.00 per cent and the Asymmetric Window at +200 and -500 basis points around the MPR. According to him, “overall, members called for an enrichment of fiscal and other sector initiatives and interventions towards resolving the growth challenges in the economy in order to promptly revive confidence in the economy.” He said that the Policy Committee met amidst relatively subdued global and domestic economic and financial conditions. The Committee evaluated the global and domestic macroeconomic and financial developments as well as the challenges to the domestic economy up to November 2016, and the outlook for the first quarter of 2017. The latest release in November 2016 by the NBS shows that real income actually worsened in Q3, 2016 as output contracted further by 2.24 per cent relative to its level in the previous and corresponding quarter of 2015. The non-oil sector grew by 0.03 per cent, driven by Agriculture which grew by 4.54 per cent, following the 0.38 per cent contraction in Q2 2016,. The MPC noted that the key undercurrents – shortage of foreign exchange, low fiscal activity, high energy prices and the accumulation of salary arrears, especially at the sub-national levels of government – continued in the third quarter of the year. Members also noted
that those conditions could not have been ameliorated directly with monetary policy instruments. It, however, recognized the need to continue to engineer monetary policy in such a way as to enable fiscal policy the required space to improve public investment in infrastructure. Reviewing the Monetary, Credit and Financial Markets Developments, the CBN boss maintained that Broad money supply (M2) grew by 10.50 per cent in September, 2016, compared with the 8.08 per cent in August, 2016. When annualized, M2 grew by 14.0 per cent in September 2016, above the growth benchmark of 10.98 per cent for 2016. Net domestic credit (NDC) grew by 21.88 per cent in the same period, annualized at 29.17 per cent. At this rate, the growth rate of NDC was above the provisional benchmark of 17.94 per cent for 2016. The development in NDC, essentially reflected the relative growth in credit to the private sector of 20.69 per cent in September, annualized to 27.59 per cent. Credit to government grew by 29.57 per cent in the review period, which annualized to a growth of 39.43 per cent compared with the growth benchmark of 13.28 per cent for fiscal 2016. The growth in government borrowing was largely to compensate for the
continued decline in oil receipts. Also Money market interest rates oscillated in tandem with the level of liquidity in the banking system. Thus, average inter-bank call rate, which stood at 11.50 per cent on 11th October 2016, closed at 15.02 per cent on November 17, 2016. Between these periods the interbank call rate averaged 11.68 per cent. However, the average interbank call rates fell to 10.00 per cent on October 24, 2016, following net government financing of N149.00 billion between October 18 and 28, 2016 and the payment on October 24th 2016 from statutory revenue allocation of N174.00 billion. The Committee noted a decline in the equities segment of the capital market as the All-Share Index ASI fell by 7.33 per cent from 27,839.93 on September 19, 2016, to 25,797.88 on November 16, 2016. Similarly, Market Capitalization MC declined by 7.11 per cent from N9.56 trillion to 8.88 trillion during the same period. In addition, relative to end-December 2015, the capital market indices fell by 9.93 per cent and 9.85 per cent, respectively, reflecting the challenges facing the economy. Emefiele also noted that the average naira exchange rate weakened at the inter- bank segment of the foreign exchange market during the review period. The exchange
rate at the interbank market opened at N305.00/US$ and closed at N305.90/US$ between September 1st and October 27, 2016. The Committee observed that total foreign exchange inflows through the CBN decreased by 31.85 per cent, from US$1,404.84 million in September to US$957.37 million in October 2016. The decrease was due to lower crude oil and other government revenues in the period under review. In spite of the resumed Joint Venture payments in October, total outflows also continued to decrease, dropping significantly by 58.68 per cent from US$2,456.86 million to US$1,015.08 million during the same period. The Committee also implored the Management to continue to direct more focus at making foreign exchange available to agriculture and manufacturing sectors of the economy by enforcing its policy directing DMBs to allocate 60 per cent of the FX available to these sectors. The MPC believes that the Security agencies should
sustain their checks on the activities of illegal foreign exchange operators in order to bring sanity to that segment of the market. The Committee reiterated that the extant foreign exchange regulation outlaws the trafficking of currency on the streets as some unlicensed operators currently do. Thus, to evolve an appropriate naira exchange rate that stabilizes the foreign exchange market, BDC operators must strictly observe the terms and conditions of their license. The Committee also evaluated the impact of its July and September 2016 actions on the macro economy 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 stag- flationary 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. Consequently, the MPC welcomes efforts at resuscitating planning, noting the progress made in developing the medium term economic recovery plan. 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. Growth is expected to remain less robust given the absence of sufficient fiscal space while the current tight stance of monetary policy and improved agricultural harvests are expected to contain further price increases and moderate price expectations as the trend has already revealed.