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Nigeria’s central bank left its key interest rate at a record high of 14 percent to fight inflation as its awaits confirmation from data of deceleration in the headline consumer price index (CPI) in Africa’s largest economy.
Aishah Ahmad, Edward Adamu, and the two other newly confirmed members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) shrugged off pressure to cut rates to stimulate economic activity, holding benchmark rate for the nine successive time, in line with expectations of five economists polled in a BusinessDay survey who all expected the rate to be left unchanged in order to stimulate Nigeria’s fragile economic growth.
The CBN governor Godwin Emefiele said the decision to retain the policy rates was geared at fighting inflation and strengthens the economic outlook for Nigeria’s growth.
“At 14 percent, the monetary rate was high enough to bring down inflationary pressure; the committee therefore reaffirms its commitment to price liquidity that is conducive to sustainable administrative process,” Emefiele told reporters on Wednesday.
“Committee was of the view that further tightening would strengthen the impact of monetary policy on inflation with complementary positive effect on capital flows and exchange rate stability,” Emefiele said.
“The committee believes that loosening would strengthen the outlook for growth by stimulating aggregate demand through reduced cost of borrowing; however, this may lead to rise in consumer prices, generating exchange rate pressures on the currency in the process.
“The committee views as satisfactory, policy associated in the economic recovery and growth plans in respect to stimulating growth in the economy,” Emefiele concluded.
The decision to raise key interest rate to 14 percent was first made in July 2016, and has been kept at the same level since then. At 14 percent, Nigeria’s Monetary Policy Rate (MPR) is currently at its highest in at least 12 years.
“This is the first meeting of the year and inflation is 14.33 percent; so once inflation starts to near the current MPR that will justify them to ease it up a bit but right now they are still watching especially as we draw nearer to elections,” said Dolapo Ashiru CEO of Mega Capital Financial Services Limited.
Ashiru added, “For foreign investor, it could affect the quantum of money they push towards fixed instruments however for Nigeria it still shows the economy has the potential to grow.”
Reacting to the development Razia Khan, the Chief Africa Economist at Standard Chartered Bank, London said, “It may be that the MPC will wait until for confirmation of the fall in CPI (which we expect over the coming months), before it cuts its policy rate. For now, the MPC remains concerned about the relative stickiness of food price inflation in Nigeria, notwithstanding weak demand, weak economic performance and weak credit growth.”
“While we continue to anticipate further MPR easing over the course of the year, it is clear that maintaining FX stability is paramount. The CBN will not do anything that is perceived to endanger this,” Khan said in an emailed response to BusinessDay.
Following the first MPC meeting of the year, Emefiele assured of Governments resolve to provide liquidity to deal with contractors arrears to the tune of N2.7 trillion, which will help to reduce the huge Non Performing Loans (NPLs) in the banking sector.
“The CBN stands ready to accord some form of liquidity status to some of these debt and through that mechanism we believe that NPLs will recede and the banks can now continue to play their role which is to catalyse growth and support credit delivery to the Nigerian economy,” Emefiele, said while responding to questions after the meeting.
The NPL of deposit money banks stood at 15.18 percent in September 2017, up from 10.13 percent in December 2016, while their loans and advances declined by 1.3 percent to N15.9 trillion in September 2017 from N16.1 trillion in December 2016, data made available by the Nigeria Deposit Insurance Corporation (NDIC) indicated.
Bayo Omogoroye, chief dealer at Guaranty Trust bank said in a statement that investors are going to be deliberating or consulting if yields at 14 percent interest rate are profitable or breakeven for them.
The MPC members decided unanimously by a vote of all members present to retain at 14 percent alongside all other policy parameters which includes Cash Reserve Ratio (CRR) at 22.5 percent, liquidity ratio at 30 percent, and asymmetric corridor at +200 basis points and -500 basis points around the MPR.
Johnson Chukwu Managing Director of Cowry Asset Management Limited said what the new MPC committee did was to thread consciously because they are taking time to settle in and understand the macro situation appropriately before making any major calls.
“The new MPC decision implies, there is no fresh injection of liquidity from the monetary side into the economy, so if there is going to be any stimulus it’s going to come from the fiscal side but unfortunately the budget has not been passed yet,” Chukwu told BusinessDay by Phone.
The inability of the MPC to form a quorum was the barrier to holding the first meeting of the year, scheduled for January 22 and 23, 2018. The next MPC meeting is scheduled for 21- 22 May 2018, according to a meeting calendar available on the CBN’s website.
Also, the CBN governor said the new members did not decide to go with the previously-held decisions of the CBN because they are new, but because they are “a strong set of people, who understand their responsibilities and have decided to hold positions for now”.
Nigeria’s foreign exchange reserves stood at $46.2 billion as of March 28, up 8.8 percent from a month earlier, central bank data showed.
Successful debt sales, including a Eurobond offering last month, have helped the government accrue billions of dollars in foreign reserves, although they remain far from the peak of $64 billion reached in August 2008.
Nigeria’s Purchasing Managers’ Index (PMI), rose in March from 54.7 percent to 59.4 percent, the production level index for the manufacturing sector grew for the thirteenth consecutive month in March 2018.The index indicated a faster growth and expansion in the current month, when compared to its level in the preceding month.
The Naira remained stable in the period under review at the CBN official rate of N305 to the dollar.
“I expect that the MPC members in the next meeting will consider reviewing one or two of the parameters if the current economic environment exists,” Chukwu concluded.
ONYINYE NWACHUKWU, Abuja, HOPE MOSES-ASHIKE, DIPO OLADEHINDE, MICHEAL ANI & BUNMI BAILEY, Lagos
