…urges Govt to freeze growth in FAAC distribution to create savings
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has predicted a fragile economic growth for the nation in 2018.
To achieve this fragile but promising growth, the Committee urged “the Government to initiate strong stabilization programmes and to freeze the growth in its aggregate expenditure and Federation Account Allocation Committee (FAAC) distributions in order to create savings; needed to stabilize the economy against future oil price related shocks.”
The Monetary Policy Committee lamented that it has “observed increasing monetization of oil proceeds as evident in the growing FAAC distribution, relative to the 2017 level of disbursements.
Addressing journalists at the end of the first MPC meeting for the year which also saw in attendance the new Deputy Governors and members of the MPC recently cleared by the Senate in Abuja, CBN Governor, Mr Godwin Emefiele noted that “forecasts of key macroeconomic indicators give a positive outlook for the Nigerian economy in 2018.”
This he said “is predicated on the quick passage and effective implementation of the 2018 budget, improved security, foreign exchange market stability as well as favourable crude oil prices.”
However on the downside, the Committee Emefiele said “noted the potential impact of the 2019 election- related spending, against the weak backdrop of tax revenue efforts, herdsmen related violence and rising yields in the advanced economies. Indications in the US and the UK point to higher interest rates in the short to medium term.”
The Committee he said noted with satisfaction “the gradual return to macroeconomic stability as reflected in the third consecutive quarterly growth in real GDP in the fourth quarter of 2017. It also noted the continued moderation in all measures of inflation as well as sustained stability in the naira exchange rate and urged the CBN to sustain the stability to avoid a mission drift.”
Overall, the MPC noted that the recovery of the economy was strengthening, in view of the return to growth of the Services Sector.
With regards to the fiscal side, Emefiele praised the fiscal sector for continuing to settle its outstanding liabilities, reducing its domestic debt profile, thus increasing the liquidity of the banking system.
The Committee noted that at 14 per cent, the policy rate was tight enough to rein-in current inflationary pressures. The Committee, therefore, reaffirmed its commitment to price stability conducive to sustainable and inclusive growth.
Members of the MPC were happy TA what they described as the “relatively strong balance sheets of the deposit money banks’ and the stable outlook. This is in spite of the concentration of non-performing loans in a few sectors, which the Committee observed was satisfactorily being addressed by adequate mechanisms established by the CBN to address the phenomenon.”
The MPC also noted that as Government pays off its huge contractor debts, a sizeable portion of these non-performing loans will be addressed. The Committee “urged the CBN to strengthen its supervisory oversight and early warning systems to promptly identify, monitor compliance with extant prudential regulations, sustain macro-prudential policy and manage emerging vulnerabilities in the banking system.”
The MPC then reiterated the CBN’s “commitment to delivery of low interest credit as evidenced in its bold steps to adopt unconventional monetary policy to aid credit flow to vulnerable and growth enhancing sectors of the Nigerian economy.”
The MPC then enjoined the CBN “to continue to support and encourage credit delivery at single digit interest rate through other mechanisms in the interim, while encouraging the banking system to establish frameworks to increase credit delivery to the employment generating sectors of the economy.”
At the end of the meeting, the Committee decided unanimously by a vote of all members present to retain the Monetary Policy Rate (MPR) at 14.0 per cent alongside all other policy parameters.
Consequently, the MPC voted unanimously to retain the MPR at 14.0 per cent; Cash Reserve Ratio (CRR) at 22.5 per cent; Liquidity Ratio at 30.0 per cent; and Asymmetric corridor at +200 and -500 basis points around the MPR.
Before answering questions from journalists the CBN governor thanked President Muhammadu Buhari and the National Assembly for appointing and clearing two Deputy Governors and other MPC members.
Emefiele said the new MPC members were subjected to rigorous induction processes stressing that “they are very qualified individuals with no preconceived notion as to what expect or demand of the committee but individuals who are given data to analyze and make objective decisions in the nation’s interest.”