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Tag: Monetary Policy Committee

  • MPC to retain interest rate in bid to bring down inflation

    MPC to retain interest rate in bid to bring down inflation

    The Monetary Policy Committee (MPC), the highest policy-making organ of the Central Bank of Nigeria(CBN), begins a crucial two-day meeting today with a decision on the benchmark interest rate as the main agenda.

    Many analysts expect the CBN to leave the benchmark interest rate, the Monetary Policy Rate (MPR), unchanged at 27.50 per cent, in preference for a more discernible consumer price trend.

    The MPC, headed by the CBN governor, traditionally provides monetary policies and benchmarks, which determine the direction of the financial services sector and the economy to a large extent.

    The National Bureau of Statistics (NBS) last week released its latest Consumer Price Index (CPI) report, showing that the headline inflation rate dropped by 52 basis points from 24.23 per cent in March 2025 to 23.71 per cent last month.

    On a month-on-month basis, inflation also declined to 1.86 per cent in April, compared to  3.90 per cent recorded in March.

    The decline in inflation rate was driven by a broad-based decrease in the prices of food items. Food inflation slowed by 53 basis points from 21.79 per cent in March 2025 to 21.26 per cent in April 2025. On a month-on-month basis, food inflation eased by 12 basis points from 2.18 per cent to 2.06 per cent.

    Core inflation-which included all items excluding farm produce and energy, also declined by 105 basis points from 24.43 per cent in March 2025 to 23.39 per cent in April. On a month-on-month basis,   core inflation dropped by 239 basis points from 3.73 per cent in March 2025 to 1.34 per cent last month. 

    Experts and sources close to the CBN said the MPC would rely on the side of caution and hold the rates and other parameters unchanged.

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    Analysts at Bismarck Rewane’s Financial Derivatives Company (FDC), Cordros Capital Group, Afrinvest West Africa and Arthur Steven Asset Management, among others, expect a cautious stance that would leave the MPR and all parameters unchanged.

    However, analysts at Futureview said the apex bank could reduce the benchmark interest rate marginally. They expect inflationary pressure to reduce further in the next period.  

    Cordros Capital analysts said: “Since the last MPC meeting, the global economic landscape has grown increasingly volatile and uncertain, primarily driven by persistent trade protectionist policies in the United States.

    ‘’In our view, the MPC is likely to take these developments into account, particularly the elevated global uncertainty and its adverse implications for naira stability, despite a positive real rate of return, given the current inflation rate. 

    ‘’Against this backdrop, we expect the MPC to adopt a cautious stance, leaving the Monetary Policy Rate (MPR) unchanged, alongside retaining all other policy parameters in a bid to anchor inflation expectations and maintain the naira’s attractiveness,”

    The analysts said inflation risks were still tilted to the upside, particularly as the naira continues to experience gradual depreciation, reinforcing the need to anchor inflation expectations.

  • CBN slashes interest rate to 13.5%

    FOR the first time in more than two years, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) yesterday adjusted interest rate downwards to 13.5 per cent.

    Central Bank Governor Godwin Emefiele told reporters after the second MPC meeting that “the MPC voted to adjust the Monetary Policy Rate (MPR) by 50 basis points from 14 to 13.5 per cent; retain the asymmetric corridor of +200/-500 around the MPR; retain CRR at 22.5 per cent and retain the liquidity ratio at 30 per cent.”

    Emefiele said in arriving at the decision to adjust MPR (interest rate) downwards, “the committee was convinced that doing this will further uphold the banks’ commitment to promoting strong growth by way of encouraging credit flow to the productive sectors of the economy.

    “The MPC also felt that through loosening by a marginal rate, will serve to manage the sentiments in the capital flow market owing to the wider spread in yields in the emerging markets and the developing economies relative to the advanced economies. Moreover, the real interest rates will still remain positive.”

    Asked if there was a relationship between slashing interest rates and the loosening stance of the MPC as signalled yesterday, and funding Small and Medium Enterprises (SMEs), Emefiele explained: “To a reasonable extent, there is a relationship between lending to not just SME but to the agriculture, manufacture and the real sectors of the economy and our decision today.

    “The reason being that if you consider the fact that, for instance, January 2017, inflation had risen 18.72 percent and by December 2017, as a result of the pressure on the foreign exchange market, reserves have dropped to about $23 billion and by that same month, even what was accruing into Central Bank had dropped to about $500 million from as high as over $3 billion sometime in August 2013/2014.

    “Exchange rate as a result of the pressure had accelerated to as high as N525 to a dollar. But if you compare those numbers with where we are today, the inflation at 11.3 per cent, foreign reserves at close to $45 billion, and we feel this trend will continue. Exchange rate converging in all the markets at between N358 to N360, GDP being in positive trajectory consecutively for five to six quarters, then you will agree with me that there is relative stability and we have proved that there is sustainability in the level of macroeconomic indices in Nigeria.”

    Defending the decision further, Emefiele noted that “having being on this part, particularly the MPR  at about 14 per cent since July 2016,  and with the relative stability we have seen in the macroeconomic variables over the last two to two and a half years, we just think that this should be the next phase where we begin to think about consolidating growth. This should be the next phase where you should be talking about how do we create more jobs and reduce the level of unemployment in our country for people.

    “We believe this should be the next phase where we should be talking about how do we diversify the base of the Nigerian economy? And that in doing that, we will continue to keep our eyes on the stability that we have achieved so far in the macroeconomic environment. We will continue to do what we have been doing that is keeping inflation low, we will continue to do what we are doing that is keeping the exchange rate stable, we will continue to do what we are doing to ensure the reserves remain on positive trajectory at comfortable levels to be able to sustain the level of growth in our economy.”

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    The CBN boss, however, sounded a note of caution, saying “there is a need for us to say, listen, we need to consolidate on what we have achieved so far and that is to begin to look at the level of growth again.

    “Looking at growth again also means that while keeping our eyes on those other parameters, let’s see whether we can signal a direction from the monetary policy to the direction of supporting and really accelerating growth in the country.”

    Accelerating growth, he explained, “means that we need to push harder to consolidate GDP, we need to push harder to make sure we create jobs and we need to push harder to diversify.

    “So, doing this will naturally mean that we are softening gradually, but I repeat and it shouldn’t be mistaken that we will continue to do what we are doing, what we have done in the past, keeping inflation at a moderated level, we will continue to do so. I think we are moving in the right direction.”

    Asked if this new level of ease on the interest rate will put pressure on the naira, Emefiele said: “The answer is a capital no, I don’t see that happening. Like I just told you that we have seen stability in the market over the last two to two and a half years and there is no need for anybody to worry. We will withstand any pressure.”

    When questioned if Nigeria is prepared for any economic pressure, the governor answered: “We have gone through it in 2015, 2016 and 2017. With the support of everybody, our management and MPC members were able to overcome such challenges and I do not think that there is any challenge that the management of the Central Bank cannot surmount. We would surmount them.”

    On the growth projection of 2.7 per cent by the CBN, Emefiele said: “We have actually been in positive growth trajectory in the last five to six quarters with an average GDP growth of about 1.9 per cent. I think that if you look at the trend from 2017 into 2018, we will naturally say that if we push hard, even harder than we have done in the past, that we should be able to attain the 2.7 per cent and three per cent growth.

    “What we are just trying to say here is that with the data available, and with consistency and with the push, that we are positive we will be trending towards 2.7 per cent  to three per cent in growth rate which is actually not fantastic if you consider where Nigeria’s growth trajectory has always been around five per cent.

    The MPC decided by a vote of six out of 11 members to reduce the MPR by 50 basis points, that is 0.5 per cent. Two members voted to reduce MPR by 0.25 per cent –  that is 25 basis points. A member voted to reduce it by 100 basis points, which is one per cent.

    Two members, however, voted to hold MPR at its current level. Ten members voted to hold all other parametres constant while a member voted to reduce the Cash Reserve Ratio (CRR) by 100 basis points from 22.5 per cent to 21.5 per cent.

    The CBN governor also reacted to concerns raised over the impact of the discounted CRR, stressing. “We received a couple of demands but not many of those demands met our expectations. Don’t forget that this is money – liquidity that should be sterilised in central bank as cash reserve requirement, making them available to the banks and doing that we must make sure that they go into the employment and growth stimulating sectors of the economy: like agriculture and manufacturing. We will make sure that this liquidity given to the banks must be for projects and expansion plan.”

    The decision to slash interest rate, he explained, followed the action of “banks themselves which have started dropping the interest rate very marginally. But we are trying to let them know that in fact, in this case, I will say that we are following them. That is why we say that we are signaling. We are signaling in the sense that with time this will permeate the entire banking sector and people will begin to see the expected impact.”

    When asked if it will be the beginning of MPC rate cutting circle, Emefiele said: “I’ve not said so. I repeat, don’t quote me wrong, I only said it is a signal, but we will continue to do what we are doing that is keeping our friends happy, keeping everybody happy. But we are going to see if it will take us to the real growth trajectory that we so desire for Nigeria.”

    The MPC also noted the need to rebase the economy (GDP), which was last done in 2010.

    Reacting to this development, Prof Uche Uwaleke of the Nasarawa State University said: “The reduction in MPR by 50 basis points signals the CBN’s desire to relax monetary policy to support economic growth. Obviously, it is a right response to the declining inflationary pressure and the relative stability in exchange rate which have prevailed for quite some time.

    “Moreover, on the external front, crude oil price has stabilised around $65 per barrel while the US interest rate normalisation has slowed down. All these must have combined to influence the MPC decision which is expected to increase the flow of credit to the real sector.

    “The reduced MPR will also be positive for the capital market as some of the increased liquidity that will ensue will flow into the equities market. Also, it will be cheaper for the government to issue bonds, given that part of this year’s budget deficit will be financed through domestic borrowing.”

  • MPC: how to steady economy amid falling oil prices

    Increased weaknesses in the global financial markets, falling oil prices, continuous capital flow reversal and moderate currency depreciations, especially in the emerging markets where Nigeria plays were the thrust of deliberations at the just-concluded Monetary Policy Committee (MPC) meeting. COLLINS NWEZE writes on the committee’s appraisal of developments in the domestic financial markets in the face of declining oil prices.

    Nigeria’s worst economic storm seems over. That was in January 2016 when crude oil price touched $25 per barrel (pb), with little hope that it would rebound.

    More than 95 per cent of Nigeria’s foreign exchange (forex) earnings come from crude oil exports. Nearly three years after, the prices have risen significantly, touching $60 per barrel  last Friday.

    But Friday’s figure was far below the over $80 per barrel recorded about three months ago and that explains the worry at last week’s Central Bank of Nigeria (CBN)-led Monetary Policy Committee (MPC) meeting held in Abuja.

    Analysts said crude oil market volatility has soared in the second half of 2018, with prices touching a four year high dropping to current levels.

    Analysts were calling for $100 oil but now seem to think prices will drop to as low as $40 per barrel.  While inventory build-ups and oil traders continue to impact prices in short term, it is the Kingdom of Saudi Arabia actions in December, a potential hike in United States interest rates and a rumbling trade war between China and the US that will really move the market.

    The MPC members said volatility in crude oil prices showed elevated financial fragilities and policy uncertainties, the gradual erosion of rule-based multilateral trading system, tighter financial conditions with latent disruptive portfolio adjustments, increased capital flow reversals with potentials for heightened exchange rate depreciation and some volatility, fiscal fragilities and increased debt burden, geo-political tensions and increasingly depressed aggregate demand in some countries.

    These factors will continue to shape developments for the rest of 2018 and into 2019.

    The MPC also noted that monetary policy in most advanced economies, particularly the US, continued on a path of normalisation in view of strong wage growth and declining unemployment.

    The committee noted the positive outlook for output growth, evidenced by the Manufacturing and Non-manufacturing Purchasing Managers Indexes (PMI), which stood at 56.8 and 57 index points, respectively, in October

    2018, indicating expansion for the 19th and 18th consecutive months.

    “This was attributed to the stability in the foreign exchange market, implementation of the 2018 capital budget and the on-going intervention of the Central Bank of Nigeria (CBN) in the real sector of the economy. However, the recent incidence of flooding across the country and the impact of herdsmen attack on farming communities could affect output growth for the rest of the year,” it said.

    Overall, the Committee believes that, even though output recovery remains fragile, the effective implementation of the 2018 capital budget, relative improvements in power supply, progress with counter-insurgency in the North- East and sustained intervention by the CBN in the real sector, will improve the investment climate and reduce unemployment. Consequently, the MPC reaffirmed its support for all initiatives designed to stimulate domestic output growth.

    The Overall Outlook and Risks

    Forecasts of key macroeconomic variables indicate a positive outlook for the economy in fourth quarter of 2018. The Committee expects that the effective implementation of the Economic Recovery and Growth Plan (ERGP) and the

    2018 budget, improvements in the security challenges, enhanced flow of credit to the real sector and stability in the foreign exchange market will redirect the economy on a path of inclusive and sustainable growth.

    Besides, increased production in the oil and the non-oil sectors are also expected to drive output growth in the medium term. The Committee, however, acknowledged the downside risks to this outlook to include: reduced portfolio inflows, weak of fiscal buffers, low domestic credit, and sluggish aggregate demand.

    “The inflation outlook suggests continued but moderate inflationary pressure to the end of 2018, based largely on increased consumer spending for the Christmas festivities, election-related expenditure and increased pace of implementation of the 2018 Federal government budget. Improvements in the security, increased harvests as well as a stable exchange rate are expected to moderate the rise in inflation”.

    Overall, the outlook for the economy remains positive with a growth projection of 1.75 per cent in 2018.

    The Committee assessed the macroeconomic environment in 2018 and noted the modest stability thus far achieved in domestic prices, output growth and the financial system. The Committee noted that the economy was on the right path but some key sectors continued to experience significant challenges. The MPC, however, expressed concern about the tepid growth expectations and growing uncertainty in the global financial markets arising from the poor reception of the Brexit deal by British politicians, continuing trade war between the US and her major trading partners, as well as the commencement of US sanctions on Iran.

    The Committee believed that although the domestic economy was recovering modestly from recession, however, the recovery was tepid and efforts should be stepped up to strengthen aggregate output and demand.

    In this regard, the Committee urged the CBN to deepen and broaden access  to finance to high employment elastic sectors with particular emphasis on small and medium scale enterprises.

     

    Financial stability indicators

    The MPC noted the improvements in the financial stability indicators, including non-performing loans, capital adequacy and liquidity ratios of the Deposit Money Banks (DMBs).

    It urged the CBN to sustain its surveillance over the Banking industry by taking prompt corrective measures to further improve stability in the system. The committee also called on the fiscal authorities to build significant buffers to strengthen the efficacy of monetary policy.

    .

  • Economy looking up, says MPC

    After an analysis of the economy and banking sector, the Monetary Policy Committee (MPC) believes the economic indicators are showing positive trend, writes COLLINS NWEZE

    For the Central Bank of Nigeria (CBN) led Monetary Policy Committee (MPC), the economy is on the road to full recovery. MPC is chaired by CBN Governor Godwin Emefiele.

    Feelers from the committee’s last meeting in Abuja indicated ongoing economic recovery which will be sustained with a positive outlook over the medium- term. The recovery is anchored on oil price recovery, fiscal spending and stability in the foreign exchange market.

    Although the banking sector is equally upbeat, but the committee members advised the lenders to continue on aggressive debt recovery drives, realize collaterals of non-performing credits as well as get the insurance companies to settle claims relating to insured debts.

    They are also expected to strengthen risk management practices and strictly enforce the CBN restrictions on payment of dividends by banks with high Non Performing Loans (NPLs).

    For instance, data from the National Bureau of Statistics (NBS) showed that real Gross Domestic Product (GDP) grew by 1.95 per cent in the first quarter of 2018, compared with 2.11 per cent and a contraction of 0.91 per cent in the preceding and corresponding quarters of 2017, respectively.

    The oil sector, which contributed 1.26 per cent in first quarter of 2018, compared with 0.76 per cent during fourth quarter of last year was the major source of the growth. The Purchasing Managers Indices (PMI) for manufacturing, and non- manufacturing activities rose for the 15th and 14th consecutive months to 57.0 and 57.5 index points, respectively, in June 2018. The committee noted the positive impact of the sustained improvement in foreign exchange supply on the performance of manufacturing and other key sectors of the economy.

    The committee welcomed the positive economic growth, but observed that the recovery was still fragile and called for the speedy implementation of the 2018 Federal Government budget and the Economic Recovery and Growth Plan (ERGP) to strengthen output growth in the Nigerian economy.

    The MPC noted with satisfaction the fourth consecutive quarters of growth in real Gross Domestic Product (GDP) and the positive growth outlook in the domestic economy. This is shown by the sustained improvement in the Manufacturing and Non- manufacturing Purchasing Managers’ indices in the second quarter of the year.

    The MPC commended the approval of 2018 Federal Government budget and called for an accelerated implementation to further support the fragile growth recovery. The committee also called for sustained implementation of the ERGP to further stimulate output growth. The committee was, however, concerned about the liquidity impact of the 2018 expansionary fiscal budget and increasing Federation Accounts Allocation Committee (FAAC) distribution, arising from rising prices of crude oil as well as the build-up in election related spending.

    For the CBN Deputy Governor, Corporate Services, Edward Lamtek Adamu, had in his personal note, said the corrective actions by the apex bank have put key banking industry indicators at the path of recovery as the non-performing loans (NPLs) ratio moderated and the capital adequacy ratio (CAR) rose mildly since June this year.

    He explained that other financial soundness indicators (FSIs) including return on equity (ROE) and return on asset (ROA) also suggested growing industry resilience. However, these improvements are yet to translate to the much needed real intermediation.

    “This is quite concerning because financial stability isn’t an end in itself; it must lead to improved services to the critical sectors of the economy, to be meaningful. It is in this light that the committee committed at the July meeting to another initiative directed at promoting private sector credit,” he said.

    Lamtek, said the meeting was held against the backdrop of improvements in key (domestic) economic and financial system indicators relative.

    “On the global front, geopolitical tensions and trade issues have remained, even as the outlook for global output growth continues to be largely positive. However, the outlook for domestic economic conditions going into 2019 is laden with uncertainties around liquidity and capital flows, among others,” he said.

    “As I evaluated the available data and forecasts, I noted especially, the fragile nature of the gains in the current macroeconomic and financial outcomes. This essentially strengthened my persuasion on the need for more reforms in the country’s fiscal and financial systems to deal with persistent liquidity threats and ensure better credit intermediation, respectively. Whereas measures by the Bank continue to be relevant stop gap, those alone would not permanently solve the fundamental structural impediments to lasting economic stability. Infrastructure continues to be a key imperative towards easing some of the constraints on credit delivery and growth in the economy”.

    Furthermore, he explained that in considering policy options for managing the risks to inflation and the naira exchange rate, there was need to factor-in economic growth and employment concerns.

    “In the absence of firm real GDP data for second quarter, 2018, indications from the Purchasing Managers’ Indices (PMIs) came quite handy. Both manufacturing and non-manufacturing PMIs, at 57.0 and 57.5, respectively for June, showed some prospects of output expansion, which should be sustained and possibly strengthened in the interest of jobs and poverty reduction,” he stated.

    While the private sector credit is expected to soothe the situation in the short-term, a long-term solution would be one that comprehensively addresses the risk concerns and apprehensions of commercial banks with non-prime borrowers in particular. On their part, industry managers need to grow banks’ resilience to shocks as well as their capacity to function by stepping up deposit mobilization and capitalization.

    Adenikinju Festus, a committee member explained that for Nigeria economy, a number of good news continue to be recorded: foreign reserves accretion continues, annual output is projected to grow by about 2.3 per cent at the end of the year, disinflation path continues year on year, Purchasers’ Manufacturers index (PMI) climbs slightly. Besides, staff presentation shows a slight drop on quarterly unemployment rate.

    “Domestic deposit banks continue to record improved performance. NPLs continue its downward trend. Deposit and asset values of the banks continue to grow, however, credit growth to the private sector was negative. This is unacceptable in the face of huge unemployment and relatively low capacity utilisation in the industrial sector. Bank operational costs remain unacceptably high. This continues to keep lending rates unacceptably high, which may affect the efficacy of simple reduction in the MPR,” the committee member said.

    He said the low appetite for risky investment and flight to safer fixed income assets is a source of concern to unlocking credit to the economy.  “I support the MPC decision for the CBN to explore unconventional way of unlocking credit to the private sector by exploring smart use of monetary instruments and other methods.

    However, the fiscal positions continue to be a source of major concern. High deficit in the 2018 budget remains a source of concern. “We are just not building buffers in a period of high oil prices, we are also not living within our means. Components of government revenues continue to underperform while non-capital expenditure remains fairly sticky downwards in the first quarter of 2018”.

    Continuing, he said there is a genuine anxiety about liquidity surfeit in a pre-election year, with anticipated high election spending, as political parties fail to keep to election spending guidelines, late passage of the 2018 appropriation bill, the supplementary bill submitted to the National Assembly, and the tensions between the executive and the legislature.

    CBN Deputy Governor, Ahmad Aisha, explained that half way into the year, the path of growth and other macro-economic indices are more evident, but the effect of the emerging global and domestic economic landscape still bears uncertainty.

    She insisted that stability and improved convergence in the exchange rate reflects the importance of Nigeria’s external reserves buffer which has grown substantially over the last two years and currently stands at N47.6 billion as at July 18th 2018.

    “Accretion to reserves has been driven mainly by the sustained recovery in crude oil prices, innovative exchange rate policies of the Central Bank of Nigeria (CBN) across various segments and export expansion / import substitution initiatives. These have given the CBN greater flexibility in managing the exchange rate”.

    “For instance, BDC rates appreciated to N360.5/$ (June 29) from N362.4/$ in November 2017, whilst the premium between the interbank and BDC rates narrowed to 17.9 per cent from 18.48 per cent, over the same period, indicating increasing rate convergence due to sustained supply of Foreign exchange (FX) by CBN and its commitment to promoting stability, liquidity and transparency in the FX market.

    Forex flows through the economy from CBN and autonomous sources also improved; reports from bank staff indicate forex from non-oil exports increased by 22 per cent from January to April 2017 compared with same period in 2018, and overall funds inflow into the forex market grew by 18 per cent over the same period”.

    “Although recent foreign investor exits have put pressure on the reserves, the CBN has been able to retain confidence of global investors by maintaining the supply of investment outlets and intervening to support market liquidity where required to facilitate seamless exits for international investors who are so inclined. This willingness to defend the naira stability has gone a long way to enhance market confidence and retain net positive forex flows which have remained largely positive over the first half of 2018”.

    Another committee member, Asogwa Chikwendu, said banking sector soundness indicators improved considerably by end of June 2018 based on CBN Staff report. For instance, there were improvements in the capital adequacy ratio, the non-preforming loans ratio as well as the profitably indicators (return on assets and return on equity).

    The capital adequacy ratio which was 11.95 per cent by April had increased to 12.08 in June while the non-performing loan ratio which is a measure of the Industry’s asset quality had reduced to 12,45 per cent in June from the previous level of 14.15 per cent in April 2018.

    The committee member said the trend in total deposits and total assets declined marginally between May and June 2018, but there was an increase in new credit which raised the overall total credit between May and June. In addition, the spread between maximum lending rates and the consolidated deposit rates narrowed in June when compared to the earlier months.

    However, another committee member, Obadan Idi, said although Nigeria has exited recession, the growth rates achieved averaged only 1.50 per cent which is very low compared to the rate of growth of population of about three per cent and very much below the economy’s potentials.

    “The outlook for growth remains fragile, as the recurring incidence of herdsmen attack on farmers, would affect agricultural output and increase prices. Other militating factors include the expected liquidity challenge from late passage and implementation of the 2018 budget, election spending, likely wage increase and the lingering challenges of critical infrastructure necessary for job creation and economic growth,” he said.

    “Inflationary pressure in the economy continued to moderate such that all measures of inflation (headline, core and food) decreased further in June, 2018. The headline inflation declined to 11.23 percent, thus sustaining the downward trajectory that began in 2017. The downward trend in domestic prices reflects the bank’s tight monetary policy stance coupled with the impact of significant reforms in the foreign exchange market”.

    He also agreed that the financial system remains sound based on various measures of financial soundness. “The few cases of high non-performing loans in the portfolios of a few commercial banks have negative consequences on the banks’ earnings and capital. However, the problem is being addressed by the CBN with corrective actions to prevent spill over to other institutions or adverse impact on financial system stability,” he stated.

     

  • Why single digit interest rate remains elusive-Experts

    Ibrahim Apekhade Yusuf in this report, reviews the outcome of the last Monetary Policy Committee (MPC) meeting with focus on interest rate, which is the major line item on the MPC’s agenda vis-à-vis promises kept, unmet needs and future expectations

    At the end of the third quarter last year, the governor of the Central Bank of Nigeria, Godwin Emefiele was upbeat about achieving a single digit interest rate before the end of the first quarter this year. However, at the last Monetary Policy Committee (MPC) meeting few days ago, Emefiele’s disposition in a manner of speaking changed from blessed assurance to unmistaken haplessness.

    As has happened in the past, circumstances way beyond his control had made the man at the helms of affairs in the nation’s apex bank regulatory body eat his words!

    Outcome of the MPC meeting

    There were indications after the last meeting in April possibility of downward reversal of rate but at the end of the second MPC meeting for the year, the CBN governor in his argument as to why the interest rate would remain unchanged.

    The CBN governor, Mr Godwin Emefiele, announced the decision of the committee at the end of a two-day meeting held at the apex bank’s headquarters in Abuja, explained that eight out of the nine members of the committee that attended the meeting agreed to maintain the current monetary policy stance.

    Emefiele said the other one member of the MPC voted that the rates be increased.

    The monetary policy committee has maintained this rate for two consecutive years. The committee had In July 2016 hiked interest rates to combat rising inflation at that time.

    Responding to questions, the CBN governor, Mr. Godwin Emefiele, who briefed journalists on the outcome of the MPC meeting, said eight of the nine members of the committee who were part of the meeting voted for the retention of the rate while one rooted for further tightening.

    The committee, which for the 11th consecutive time, retained the Monetary Policy Rate (MPR) at 14 per cent, Cash Reserve Ratio (CRR) at 22.5 per cent, Liquidity Ratio (LR) at 30 per cent, and the asymmetric corridor at +200-500 basis points around the MPR, explained that it retained in consideration of the forecast of high liquidity injection in the second half of 2018, upward pressure of prices driven largely by substantial expansion of fiscal policy, which would arise from the late passage of the 2018 budget, outstanding balance from the 2017 budget and pre-election spending, to retain the interest rate.

    Emefiele admitted that the MPC had earlier declared that once inflation rate trends downwards to a single digit or double-digit lower rate, it would bring the MPR down.

    According to the latest figures released by the National Bureau of Statistics (NBS), the inflation rate for April was 12.48 per cent, down from 13.34 per cent recorded in March.

    He explained that the MPC decided not to lower the MPR for now as a pre-emptive measure to guard against possible inflationary pressures that the late implementation of the 2018 budget and election expenses might exert on the economy.

    “It is very true that we said until inflation drops to single digit before we take a decision on reducing the interest rate, but you will also observe, in the course of this presentation, we explained the expansion of fiscal activities that we foresee, beginning from around May or June this year.

    “At this time, the fact that we are still on the 2017 budget; the 2018 budget will eventually kick in around June or July, there will be an acceleration in the rate of spending and we also expect a lot of election spending.

    “These indications, expectedly, are meant to expand the economy and spur growth which I will say is commendable, but we also know that those expansionary fiscal measures will gradually lead to an inflationary increase and if that happens, it will reverse the gains we have recorded over time.

    “The committee considered the forecast of high liquidity injection in the second half of 2018, upward pressure of prices driven largely by the substantial expansion of fiscal policy which will arise from the late passage of the 2018 budget, outstanding balance from the 2017 budget and the pre-election expenditure,” he explained.

    Emefiele stated that the MPC felt that further tightening would ensure the mop up of excess liquidity, mindful that despite the moderation in inflation, the current inflation rate was still above the single digit target and that the real interest rate only turned positive in the review period.

    Reactions trail outcome of MPC meeting

    Expectedly there have been chain reactions over the outcome of the MPC meeting.

    While ventilating her views about the decision by the MPC to hold rates, the Chief Economist for Africa at Standard Chartered Bank Razia Khan noted that ordinarily there ought to be some concern about the inflationary impact of pre-election spending, current conditions in the economy make it difficult to overplay the threat of much higher inflation.

    She explained: “Inflation is on a down trend, courtesy of recent forex stability. It will likely decelerate further. The economy is weak. Outside of lending to the government, money supply is contracting.

    “In our view, it would have made more sense for the CBN to front-load its easing, reversing course later if it became clear that pre-election spending – in its multiple forms – was likely to be a problem.

    “However, the CBN is especially concerned about investor profit taking and the likelihood of capital outflows at this point in time. We interpret the decision to keep all rates unchanged as suggesting that forex stability – even with oil back at $80 per barrel – remains paramount, and the CBN will not do anything to risk this. Not even easing, when the opportunity presents itself.

    “The CBN also seemed to indicate that it remained uncertain of the monetary transmission mechanism even if it did cut the policy rate.

    “While the MPC continues to hint that easing remains on the cards when conditions eventually permit it, there is far less clarity on when everything might eventually fall into place.”

    Relatedly, Renaissance Capital predicted that there would be no change in the policy rate until around the July and September meetings.

    In a report titled, ‘Sub-Saharan Africa: Has inflation bottomed? – Implications for monetary policy,’ RenCap said interest rate for Nigeria would drop as inflation nears or gets to single digit.

    “Over the past two years, we have seen inflation slow year-on-year in the countries we cover – from this decade’s peak of 13 to 14 per cent on average in mid-2016 to seven per cent in April. Except for Nigeria, we think inflation has bottomed. This is the reason why we believe the policy rate cutting cycle in Ghana, Zambia, Rwanda and Kenya, albeit short-lived, has ended. In Nigeria, where we think inflation has fallen further, we expect rate cuts to begin in July,” it said.

    However, it said that rate cut is not likely to have a meaningful policy easing effect, as open market operations will keep yields elevated.

    “At our 16-18 May Annual Pan Africa 1:1 Investor Conference in Lagos, the banks said lending rates are unlikely to fall on the back of rate cuts, as Treasury bill yields are of greater influence.  They also do not see the CBN lowering the cash reserve requirement for fear of undermining the forex rate,” it said.

    It said Nigeria is already near rate cut. In terms of slowing inflation, Nigeria is the exception in the countries under our coverage, in that inflation has yet to bottom. We see inflation slowing year-on-year to 10.8 per cent at year-end 2018, as against 12.5 per cent in April.

    “The Central Bank of Nigeria’s (CBN) Governor Godwin Emefiele would like to cut the policy rate, when inflation falls to the low double-digits/high single-digits. We infer that to mean 12 per cent and below, which we expect from June. We see the policy rate being cut by one percentage point at the July and September meetings, respectively, bringing it down to 12 per cent at year-end 2018,” it said.

    The report added: “We think this implies the impact on credit growth, which stood at 0.3 per cent year-on-year in March, will be small, at best. Lower yields will likely spur a pick-up in lending in 2018; the banks are guiding for 10 per cent credit growth. In 2019, we expect structural factors to keep inflation sticky at  11 per cent. So, expect no policy change,” it added.

    “We see the policy rate being cut by one percentage point at the July and September meetings, respectively, bringing it down to 12 per cent at the end of 2018.

    “This is not likely to have a meaningful policy easing effect, as open market operations will keep yields elevated,” it added.

    The financial advisory firm revealed that at a conference it held recently where its officials interacted with some bankers in Lagos, “the banks said lending rates were unlikely to fall on the back of rate cuts, as treasury bill yields are of greater influence.”

    For CSL Stockbrokers Limited, going through the latest policy communiqué, a few explanations jumped out at the firm – some old and some new.

    According to the firm, the old answer was that the “MPC does not want to prompt a reversal of portfolio inflows by cutting rates too quickly and is reluctant to reduce rates until inflation is at the bank’s targeted single-digit level.

    “The newer explanation revolves around fiscal policy. With only a few rates setting meetings left before the election campaign kicks off in earnest, the question then becomes – is the window for easing policy closed or about to close?”

    In his own reaction, Senior Economist at Exotix Capital Christopher Dielmann said the MPC decision was largely based on the high level of inflation that continues to plague the country as well as rising US treasury rates painting the macro backdrop to this decision.

    “As growth continues to lag and inflation falls towards single digit, we expect a policy rate cut as early as the MPC’s next meeting in July,” Dielmann said.

    Nigeria has highest interest rate in Africa

    Meanwhile, a study has revealed that Nigeria has the highest interest rate in Africa. According to the study, sub-Saharan Africa has some of the highest interest rates in the world. The study conducted last year by Investmentfrontier.com, showed that four of the six countries with the world’s highest interest rates reside in sub-Saharan Africa.

    The countries are Nigeria, Malawi, Gambia and Ghana, and they reflect the broad picture in the region – and, indeed, the wider African continent – of generally high interest rates.

    The interest rate is dependent on the base rate or monetary policy rate which is fixed by a country’s central bank. The base rate for Nigeria is 14%. In contrast, that of Kenya is 10% and that of South Africa is only 6.75%. In Tanzania, the interest rate is 8.91 percent.

    Banks in Nigeria factor in the high cost of doing business and set their lending rate at 25% or more. The CBN has however kept the benchmark rate at 14% in the past couple of years as a way of checking inflationary pressure. There is an inverse relationship between interest rates and inflation. When interest rates are reduced people are able to borrow more and spend more and this leads to an increase in inflation rate.

    On the other hand, when interest rate is high, inflation is checked because people are discouraged from borrowing and thus spending is reduced. The second way in which inflation affects interest rate is that banks cannot fix their lending rate lower than the inflation rate else they run at a loss. Since the inflation rate in Nigeria is currently 15.37%, this means that the lending rate cannot be lower than this.

    According to CRC Credit Bureau Limited, “The cost of doing business is high in Nigeria. For banks these include the costs associated with defaults, high speed broadband internet and technology, running the branches including cost of diesel to power the generator and the cost of security personnel for the branches.

    Financial intermediation costs, CRC Credit admits, include administrative costs incurred by banks; cash reserve requirement (CRR) and liquidity ratio requirement. “We have already established that administrative costs are high for banks because of the high cost of doing business. The cash and liquidity ratio requirements are also high at 22.5% and 30% respectively. The high intermediation cost incurred by banks is reflected in high interest rates charged to borrowers.”

     

  • 2019 polls may push up inflation, says MPC

    As preparations for the 2019 general elections thicken, Monetary Policy Committee (MPC) members have projected  that increased spending could raise inflation figures.

    In personal notes from the MPC members released yesterday, former Central Bank of Nigeria (CBN) Deputy Governor, Suleiman Barau, said heightening  of political  activities  from this year  may  take  its toll  on  the economy  recovery  process  given  that  it  precedes  2019  when  general  election  would  be  held.

    He said: “There  is  the  tendency  for  electioneering  activities  to  increase,  which  would lead   to   significant   injection   of   money   on   recurrent   expenditures.   This invariably, has  the  tendency  to  cause  a  setback  on  the  current  downward trend on inflationary pressures, if the process is not well managed”.

    According tohim,  the  liquidity  threat  in  the  context  of  2018  being  a  pre-election  year  and  the absolute size of the 2018 budget will no doubt be a risk to price stability that MPC must have to tackle proactively.

    Barau said a preliminary review of the 2017 budget revealed that only N450 billion of the capital vote was released as at 28 the end of October 2017, translating to about 20 per cent performance. This, he said, was below the acceptable threshold for an economy recovering from recession.

    “From the benefit of hindsight, the reason for such   poor performance   is   largely   due to delayed commencement in budget implementation on account of late  passage  of  the  Bill  into  law,” he stated.

    He belived that given  the imperative  of  accelerating  the  recovery  phase,  the  various  initiatives  in  the capital  project  should  not  only  be  executed,  but  the  execution  should equally  be  done speedily, his note on the November 2017 MPC meeting posted on CBN website showed.

    Another MPC member, Barba, Abdul Ganiyu, said political activity will dominate 2018 as  count down  to  the 2019 elections begins. “Politics  tend  to  correlate  positively  with  money  supply  and  exchange  rate and  inflationary  pressures.  Thus,  the  political  premium  is  likely  to  be  positive and significant. With the balance sheet normalization plans of the US Fed well underway and inflationary pressures expected to rise significantly in 2018, the economic premium is  also  likely  to  rise.

  • Stimulation fund: Financial expert tasks FG on proper planning

    Stimulation fund: Financial expert tasks FG on proper planning

    A former President of the Chartered Institute of Bankers of Nigeria (CIBN), Mr Okechukwu Unegbu, on Monday urged the Federal Government to specify strategic areas that the proposed N350 billion stimulation fund would be injected into.

    Unegbu told the News Agency of Nigeria (NAN) in Lagos there must be proper planning before the injection of such funds in the economy, to avoid excess liquidity.

    He said that there must be proper clarity and planning where the funds would be channelled into, for economy growth and development.

    Unegbu said that government should work closely with the Central Bank of Nigeria (CBN), to streamline fiscal and monetary policies.

    He explained that there must not be any disconnection between the apex bank and government in policy management.

    Unegbu, however, expressed concern at the disparity between the CBN’s Monetary Policy Committee (MPC) and the Federal Government in the management of the economy.

    He stated that the major reason for increasing interest rate to 12 per cent from 11 per cent was to reduce excess liquidity.

    According to him, government should work closely with the CBN to avoid a policy somersault.
    NAN reports that the Federal Government announced its readiness to inject a total of N350 billion into the economy in the next few months.

    Mrs Kemi Adeosun, Minister of Finance, said that part of the money would help to offset the debt owed to local contractors, who had laid-off their workers due to lack of funds.

     

  • CBN Increases Interest Rate to 12% 

    CBN Increases Interest Rate to 12% 

    Four months after the Monetary Policy Committee (MPC) reduced interest rates, it has reversed its decision and increased Monetary Policy Rate or interest rates bank lend money to 12 percent.

    Addressing journalists at the end of the two days MPC meeting in Abuja Tuesday, the governor of the Central Bank of Nigeria (CBN) Mr Godwin Emefiele said “the Committee, in its assessment of relevant internal and external indices, came to the conclusion that the balance of risks is tilted against price stability. The MPC therefore, voted to tighten the stance of monetary policy.”

    Based on this, the MPC raise MPR by 100 basis points from 11.00 per cent to 12.00 per cent; Raise the Cash Reserve Ratio (CRR) by 250 basis points from 20.00 to 22.50 per cent; retain Liquidity Ratio at 30.00 per cent; and narrow the asymmetric corridor from +200 and -700 basis points to +200 and -500 basis points.

    Before arriving at this decision, Emefiele stated that “the Bank had adopted accommodative monetary policy since July 2015 in the hope of addressing growth concerns in the economy, effectively freeing up more funds for DMBs by lowering both CRR and MPR, with excess liquidity arising from the lower CRR warehoused at the CBN.”

    Emefiele noted that Deposit Money Banks (DMBs) were to access these funds by submitting verifiable investment proposals in the real sector of the economy.

    He however lamented that “the funds have not impacted the market yet because the CBN was still processing some of the proposals submitted by the DMBs. In the first episode of easing which resulted in injecting liquidity into the Banking system, DMBs did not grant credit as envisaged.”

    The CBN governor added that, “the delay in passage of the 2016 Budget has further accentuated the difficult financial condition of economic agents as output continues to decline due to low investment arising from weak demand.”

    “The cautious approach to lending by the banking system underpinned by a strict regulatory regime conditioned by the Basel Committee in the post global financial crisis era has further alienated investors from access to credit as banks prefer to build liquidity profiles in anticipation of government borrowing,” he said.

    The Committee noted that the sluggish growth in output was partly attributable to “certain fiscal uncertainties, which inadvertently hampered investment spending and flows; intermittent fuel scarcity, increased energy tariffs (without commensurate improvement in power supply), foreign exchange scarcity as well as slow growth in credit to private sector in preference to high credit growth to the public sector.”

    The Committee noted that many of these factors were outside the control of monetary policy and given these limitations, in the absence of complementary fiscal and structural policies, the only option was to continue with the existing measures.

    The MPC Emefiele said “believes that complementary fiscal and structural policies are essential for reinvigorating growth.”

    The Committee reiterated its commitment to maintaining a stable naira exchange rate stressing that it “ took note of the high level of activity in the autonomous foreign exchange market as well as the rising demand in the interbank market but observed that the data on demand for foreign exchange had become ‘very noisy’, being overshadowed by speculative demand.”

    However, the Committee charged the CBN “to speed up reforms of the foreign exchange market to improve certainty and eliminate noise and opportunities for arbitrage.”

    On the monetary front, Emefiele, said, “the wider economy appears starved of the needed liquidity to spur growth and employment. Recent performance of the monetary aggregates lends credence to this fact.  With the exception of credit to government, growth in all the monetary aggregates remained largely below their indicative benchmarks, yet; headline inflation spiked to 11.38 per cent in February 2016, substantially breaching the policy reference band of 6 – 9 per cent.”

    The increase in inflation he said “was driven not so much by liquidity, but by structural factors such as fuel scarcity, increased electricity tariff, persistent insecurity, exchange rate pass through and seasonality of agricultural produce.”

    Emefiele warned that “the conflicting signals from slowing growth and rising inflation present a difficult policy challenge.”

    The CBN governor noted the limitations of monetary policy in influencing the drivers of the current price spiral, which led the Committee to stress the need to urgently address the key sources of the pressures. In this regard, the Committee reaffirmed its commitment to closely monitor the development while working with relevant authorities to address the structural bottlenecks.

    The Committee also enjoined the relevant agencies to speed up passage of the 2016 Budget in order to halt the depressing effect of the uncertainty that engulfs the waiting period, hoping that the implementation of the budget would go a long way in boosting business confidence, and reinvigorating the financial markets. In the circumstance, the Committee urged the Bank to continue to upscale its surveillance of the financial system with the aim of promptly detecting and managing vulnerabilities to ensure sustained stability.

    When asked what will happen to the $20 billion in some individuals’ domiciliary accounts, Emefiele said the money was not sitting idle in the banks but were being used by the banks to fund assets on the other side of the balance shot and constitute a liability in the banks’ balance sheets.