27 July 2016, Sweetcrude, Abuja – The Central Bank of Nigeria, CBN, Governor, Godwin Emefiele, has announced that the Monetary Policy Committee, MPC, voted to raise its Monetary Policy Rate, MPR, to 14%. The committee voted to raise the MPR by 200 basis point in a move which shocked many analysts who projected that the apex bank would hold MPR at 12%.
Speaking at the end of the meeting at the CBN Headquarters in Abuja, Emefiele noted that of the eight out of ten members of the committee were in attendance at this month’s MPC meeting, 5 voted to raise MPR while 3 voted to maintain status quo.
MPC however, retained Cash Reserve Ratio, CRR, at 22.5%, while Liquidity Ratio and the asymmetric corridor remain at 30% and +200-500 basis point respectively.
Emefiele said sluggish growth in the global economy, the Brexit vote, as well as weak growth in the United States all contributed to curtail expectation of global financial prosperity.
Faced with an environment of rising inflation, the MPC was faced with the twin goals of either voting to restart growth or fighting inflation, Emefiele said.
According to the CBN governor, the Committee is concerned about the need to urgently diversify the economy into agriculture, manufacturing, and services in order to rise above its current state.
“The Committee expresses satisfaction with banks with regards to credit to the private sector, and encourages commercial banks to keep up the tempo, so as to grow the economy,” Emefiele said.
MPC members also called on the Federal Government to fast-track the implementation of the 2016 budget and drew attention to the depressing implication of non-payment of salaries.
Prior to the all-important decision of the Monetary Policy Committee, MPC, meeting yesterday, members said the likelihood of an improvement in foreign exchange supply in near-to-medium term is highly diminished, given that the driving force is permanent negative term of trade shock.
This was contained in the personal statement of members for the last MPC, which was released yesterday by the Central Bank of Nigeria, CBN.
“Apart from the effect of term of trade shocks on current account, available statistics show that the advanced countries’ currencies particularly the US dollar has appreciated against emerging countries’ currencies since the latter part of 2015 on the backlash of the commencement of monetary tightening by the US Federal Reserves,” Adelabu Adebayo, deputy governor, Corporate Services, said.
He said the current exchange rate framework is not compatible with the realities from the dynamic operating environment. It is therefore imperative to review the current framework to a model that permits a great deal of flexibility to accommodate shocks from the external environment.
In her statement, Sarah Alade, deputy governor, economic policy, said in the short to medium term monetary policy must ensure that the economic engine is not grinded to a halt and should be focused at resuscitating growth.
She said the current foreign exchange regime should be reviewed to ensure continuation of economic activities. Reduced inflow as a result of low oil prices is making foreign exchange scarce in the country. While the Central Bank is making all efforts to meet all legitimate foreign exchange demand, more should be done to ensure that economic activities are not grounded.
“I support the review of current foreign exchange management framework in the country to ensure continuation of economic activities. Policies that will encourage inflows and increase supply of foreign exchange to meet import demand should be encouraged and implemented”, Alade said.
According to her, the lack of flexibility in the interbank foreign exchange market is fuelling capital outflow and currency weaknesses outside the interbank market. These developments are having a dampening effect on growth and driving inflation. At this time, monetary policy should be focused on restoring confidence in the domestic economy and increasing supply of foreign exchange to attract inflows.