MPC advocates coordinated macroeconomic policies

The Monetary Policy Committee (MPC) on Tuesday again retained interest rate at 14 per cent with all other policy parameters unaltered.

The Central Bank of Nigeria (CBN) Governor, Mr Godwin Emefiele, announced this in Abuja during a news conference on the outcome of the MPC meeting.

He said the committee elected to retain the current policy, which is the Monetary Policy Rate at 14 per cent, Cash Reserve Ratio at 22.5 per cent and Liquidity Ratio at 30 per cent.

The Asymmetric Window was also retained at +200 and -500 point around the Monetary Policy Rate.

Emefiele said that the committee assessed the relevant risks to the global and domestic economy and concluded that the risks to the economy remained highly elevated on price and output.

He said that available data and forecasts of key economic variables indicated that the outlook for growth and inflation in the medium term continues to be challenging.

“Growth is expected to remain less robust, given the absence of sufficient fiscal space.

“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.’’

The CBN governor said that the committee assessed the fragile macroeconomic conditions and the strong headwinds confronting the economy.

He also said that the committee’s considerations include the yet to be unveiled long term uncertainties of Brexit and expectations of significant shifts in the United States economic policy.

He added that the committee reaffirmed the urgency of prioritising the diversification of the economy given the emerging gloomy protectionist outlook of the global economy.

“The committee also evaluated the impact of its July and September 2016 actions on the macro-economy.

It noted 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.’’

He also said that 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.

Emefiele said that the MPC welcomed efforts at resuscitating planning, noting the progress made in developing the medium term economic recovery plan and that the Federal Government should urgently assess the extent of its indebtedness to domestic economic agents.

He said that the committee also advised the Federal Government to develop a framework for securitising the debts, to settle its outstanding domestic contractual obligations which cut 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.’’

Emefiele added that members called for an enrichment of fiscal and other sector initiatives and interventions.

This, he said, was geared towards resolving the growth challenges in the economy, to promptly revive confidence in it.

The governor said that the average Naira exchange rate weakened at the inter-bank segment of the foreign exchange market during the review period.

“In spite of the resumed Joint Venture payments in October, total outflows also continued to decrease, dropping significantly by 58.68 per cent from 2.4 million dollars to 1.0 million dollars 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.

“This is by enforcing its policy directing Deposit Money Banks (DMBs) to allocate 60 per cent of the foreign exchange available to these sectors.’’

Emefiele added that the MPC believed that the security agencies should sustain their checks on the activities of illegal foreign exchange operators, to bring sanity to the segment of the market.

He reiterates that the extant foreign exchange regulation outlaws the trafficking of currency on the streets as some unlicensed operators currently do.