The Central Bank of Nigeria (CBN) maintained its monetary policy rate on Tuesday, Nov. 22, and has now handed over the mantle of revamping Africa’s largest economy to growth to fiscal authorities.
Godwin Emefiele, the CBN governor, after announcing the MPC’s decision to retain interest rates at 14 percent, Cash Reserve Ratio at 22.50 percent and the Liquidity Ratio at 30 percent, put the spotlight on fiscal authorities after he called for a review of domestic debt to help the economy find growth again.
“These accumulated debts,” Emefiele said, “are adversely affecting economic activity,” and has become a strain on the financial sector.
The ratio of non-performing loans to total credit climbed to 11.7 percent at the end of June 2016, from 5.3 percent at the end of 2015, according to CBN which requires banks keep the measure below five percent.
“There’s no doubt that the size of government’s domestic debt is worsening the economic lull in the country and if addressed would soften the non-performing loans in the financial sector and help banks lend more which is key amid a recession,” said Kyari Bukar, chairman of the Nigeria Economic Summit Group, by phone.
Nigeria’s economy fell into recession in the second quarter of 2016, after contracting by 0.36 percent and 2.06 percent in the first and second quarters of 2016 respectively. The National Bureau of Statistics, however, in its third quarter report released on Monday, Nov. 21, showed that the economy fell deeper in recession, printing at -2.24 percent, as an FX crunch and a declining oil sector bite.
“With the current shortage of FX clearly having a detrimental effect on growth, there is little evidence of any meaningful monetary policy initiative that might be able to resolve this,” said Suleiman Abubakar, executive director, Sterling Bank plc.
Abubakar recalled that a year ago, the MPC said it was getting close to the limit of it decisions. “You cannot try to change a rule at the height of crisis. The CBN should be waiting for the fiscal authority to come on board.”
Bismarck Rewane, an economist and CEO of Financial Derivatives Company Ltd, also noted that “It is now over to the “fiscalists” to rejig the economy.”
Nigeria’s 14 percent interest rate compares with Ghana’s 22.5 percent, Mexico’s 5.25 percent, Kazakstan’s 12 percent and Egypt’s 14.75 percent, who have all decided in November.
South-Africa is due for a policy rate announcement on November 24, while the US Federal Reserves is scheduled to meet on December 14.
Nigeria’s MPC decision- the last for 2016- was keenly awaited, to see whether the CBN would bow to the ugly third quarter figures and slash interest rates or maintain a tightening stance in reaction to rising inflation, which cemented an 11-year high in October, at 18.3 percent.
Some analysts had expected some rate easing to spur growth but Emefiele acknowledged that outlook for growth and inflation in the medium term continues to be challenging, but the factors instigating them are largely outside monetary policy.
“Risks remain highly elevated on both price and output but that considering the importance of price stability and being mindful of the limitations of the monetary policy in influencing output and employment under the conditions of stagflation,” the governor told reporters in Abuja.
“Members noted that those conditions could not have been ameliorated directly with monetary policy instruments, but however recognised the need to continue to set monetary politics in such a way as to enable fiscal policy the required space to improve public investment in public infrastructure,” he added.
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