CBN retains 14% Monetary Policy Rate, says cut will worsen inflation

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has retained lending rate at 14 per cent, saying a rate cut will worsen inflation.
CBN Governor, Mr Godwin Emefiele, said this in Abuja on Tuesday while briefing newsmen on the outcome of the first MPC meeting for the year.
Emefiele further explained that a rate cut would further destabilise the already volatile foreign exchange market.
“The committee further noted that Inflationary pressures would begin to subside as non-oil output recovers and the naira exchange rate stabilises.
 
“Until then, it stressed, a rate cut would worsen the inflationary conditions, stunt growth and undermine the current outlook for stability in the foreign exchange market. `
 
“The committee also feels that doing so would further aggravate demand pressures while undermining existing income levels in the face of the already expansionary monetary policy and increasing inflationary pressures, which will make the economy unattractive for foreign and domestic investment.
 
“Given these limitations, the committee was reluctant to lower the policy rate on this occasion, but remained committed to doing so when the conditions permit.’’
Emefiele said the committee unanimously voted to retain the Monetary Policy Rate (MPR) at 14 per cent, maintain the Cash Reserve Ratio at 22.5 per cent and then keep the Liquidity Ratio at 30 per cent.
 
Also, the Asymmetric corridor was retained at +200 and -500 basis points around MPR.
 Since July 2016, there has been no major monetary policy change.
 
The CBN chief said the domestic economy and the uncertainties in the global environment also informed the decision of the committee.
 
He said the rising wave of nationalistic ideologues across Western countries, the re-evaluation of trade agreements and the monetary policy in the United States, would impact on other countries, including Nigeria.
 
“The uncertainties underpinning the implementation of Brexit and the apparent retreat from globalisation and free trade were also important points of reflection.
 
“In recognition of the inevitable structural shift in the global economy, the committee reiterates the need to look inward look and hasten economic diversification to support the economy and improve life of Nigerians,’’ he said.
 
Emefiele spoke of the need for a greater coordination of monetary and fiscal policy to reflate the economy.
 
“The committee is of the view that the scarcity of foreign exchange, low fiscal activity, high energy prices and the accumulation of salary arrears cannot be directly ameliorated by monetary policy actions.
 
“The committee hopes that the recent increase in oil prices would be complemented by production gains to provide the needed tailwinds to sustainable economic activity.
 
“In that regard, the committee commends the commitment of the fiscal authorities to step up efforts to fill the aggregate demand gap through a speedy resolution of the domestic indebtedness of the federal government to states and local contractors.
 
“ The committee believes that doing so will aid the effort towards economic recovery,’’ he said.
 
Emefiele said the committee urges relevant authorities to ensure the quick passage of the 2017 budget and to seriously consider using the Public Private Partnership in its infrastructure development programme.
 
He stated that doing so will cushion the economy against any possible shocks where there is a shortfall in budgeted revenue.
 
While fielding questions from newsmen, Emefiele reiterated that the bank would continue to give priority to importers of industrial raw materials, equipment and agric inputs in terms of foreign exchange allocation.
 
He said the country’s foreign reserves had risen to about 28.9 billion dollars due to rising oil prices.
 
He said in spite of that, the bank would continue to be prudent in managing the country’s foreign reserves.