CBN’s MPC uncomfortable with Nigeria’s exit from recession, says it’s still fragile

The 0.55 per cent Gross Domestic Product (GDP) growth rate, which pulled Nigeria out of its 15-month recession, is still fragile, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) said on Tuesday.

The CBN governor, Godwin Emefiele, made this disclosure when he read the resolution of the committee following its two-day meeting on monetary policy review.

Emefiele further said that while the MPC discovered that the recovery from recession was still fragile, it noted that the fragility of the growth “makes it imperative to allow more time to make appropriate complementary policy decision to strengthening the recovery.”

He said that the committee was hopeful that the active implementation of the 2017 budget could boost aggregate demand and employment.

He added that MPC’s believe on the need to boost aggregate demand and stimulate growth, was a major reason it concluded not to tinker with the monetary policy rates.

According to Emefiele, of the seven members of the MPC in attendance at the meeting, six voted for the retention of all rates, while only one of them voted for the easing of the lending rate.

Consequently, the Monetary Policy Rate was retained at 14 per cent, while the Cash Reserve Ratio was also retained at 22.5 per cent and Liquidity Ratio at 30 per cent.

The committee, which has been holding the rates since July 2016, further retained Asymmetric corridor at +200 and -500 basis points around the MPR.

Justifying why the rates were retained, the CBN governor said that the committee believed that the effect of fiscal policy action towards stimulating the economy has already started manifesting as apparent in the exit of the economy from the 15-month recession.

“The committee applauded the exit of the Nigerian economy from recession but observed that the growth remains fragile and, therefore, hopes that complementary fiscal and monetary policies will sustain the growth momentum. Although, it seems fragile, the fragility of the growth makes it imperative to allow more time to make appropriate complementary policy decision to strengthening the recovery.

“Secondly, the committee was of the view that economic activities would become clearer between now and the first quarter of 2018 when growth is expected to have sufficiently strengthened.

“The most compelling argument for a hold was to achieve more clarity in the evolution of key macro economy indicators, including budget implementation, economic recovery, exchange rate, inflation and employment generation,” Emefiele said.

On worries expressed by one of the MPC members, Adedoyin Salami, over the rise in the CBN’s financing of the government, which according to him was limiting private sector access to credit, Emefiele said that the apex bank had not over-funded the activities of government.

In a communiqué no. 114, Salami had argued that the monetary data showed a sharp rise in the extent of the CBN financing of the Federal Government’s 2016 deficit.

He added that the CBN had become a “piggy bank” in which over N1.5 trillion had been moved to service debt as of April 2017 from N3 billion at the end of 2016.

But the CBN governor said in his reply, “Let me state categorically that the CBN has not over-funded the Federal Government. The Federal Government, on its own, decided that all its funds, both in local and foreign currencies should be moved to the Central Bank of Nigeria, into the Treasury Single Account.

“It is important to put it in perspective. You as a customer of a central bank or any other bank, and you have fixed deposit in an account and for some reasons, you want spontaneous financing to meet your obligation.

“If you approach your bank to allow you to over-withdraw from your account temporarily, your bank will. So this have nothing to do with the CBN or any other bank. The assurance I will give to you is this: There is no truth in the issue of overfunding, because whatever is overdrawn is far less than what the Federal Government also has in its TSA.

“So basically, all this has to do with lack of understanding of the operations of the CBN.”

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